FORECLOSURE 

REVIEW

Regulators Could 

Strengthen Oversight 

and Improve 

Transparency of the 

Process

Report to Congressional Requesters

April 2014

GAO-14-376

United States Government Accountability Office
United States Government Accountability Office

Highlights of GAO-14-376, a report to 

congressional requesters

April 2014

FORECLOSURE REVIEW

Regulators Could Strengthen Oversight and Improve 

Transparency of the Process

Why GAO Did This Study

In 2011 and 2012, OCC and the 

Federal Reserve signed consent 

orders with 16 mortgage servicers that 

required the servicers to hire 

consultants to review foreclosure files 

for errors and remediate harm to 

borrowers. In 2013, regulators 

amended the consent orders for all but 

one servicer, ending the file reviews 

and requiring servicers to provide $3.9 

billion in cash payments to about 4.4 

million borrowers and $6 billion in 

foreclosure prevention actions, such as 

loan modifications. One servicer 

continued file review activities. GAO 

was asked to examine the amended 

consent order process. This report 

addresses (1) factors considered 

during cash payment negotiations 

between regulators and servicers and 

regulators’ goals for the payments, (2) 

the objectives of foreclosure prevention 

actions and how well regulators 

designed and are overseeing those 

actions to achieve objectives, and (3) 

regulators’ actions to share information 

from the file review and amended 

consent order processes and 

transparency of the processes. GAO 

analyzed regulators’ negotiation 

documents, oversight memorandums, 

and information provided to borrowers 

and the public about the file review and 

amended consent orders. GAO also 

interviewed representatives of 

regulators, servicers, and consultants.

What GAO Recommends

OCC and the Federal Reserve should 

define testing activities to oversee 

foreclosure prevention principles and 

include information on processes in 

public documents. In their comment 

letters, the regulators agreed to 

consider the recommendations.

What GAO Found

To negotiate the $3.9 billion cash payment amount in servicers’ amended 

consent orders, the Office of the Comptroller of the Currency (OCC) and the 

Board of Governors of the Federal Reserve System (Federal Reserve) 

considered information from the incomplete foreclosure review, including factors 

such as projected costs for completing the file reviews and remediation amounts 

that would have been paid to borrowers. To evaluate the final cash payment 

amount, GAO tested regulators’ major assumptions and found that the final 

negotiated amount generally fell within a reasonable range. Regulators generally 

met their goals for timeliness and amount of the cash payments. By December 

2013, cash payments of between $300 and $125,000 had been distributed to 

most eligible borrowers. 

Rather than defining specific objectives for the $6 billion in foreclosure prevention 

actions regulators negotiated with servicers, regulators identified broad 

principles, including that actions be meaningful and that borrowers be kept in

their homes. To inform the design of the actions, regulators did not analyze 

available data, such as servicers’ recent volume of foreclosure prevention 

actions, and did not analyze various approaches by which servicers’ actions 

could be credited toward the total of $6 billion. Most servicers GAO spoke with 

said they anticipated they would be able to meet their obligation using their 

existing level of foreclosure prevention activity. In their oversight of the principles, 

OCC and the Federal Reserve are verifying servicers’ foreclosure prevention 

policies, but are not testing policy implementation. Most Federal Reserve 

examination teams have not begun their verification activities and the extent to 

which these activities will incorporate additional evaluation or testing of servicers’ 

implementation of the principles is unclear. Regulators’ manuals and federal 

internal control standards note that policy verification includes targeted testing. 

Without specific procedures, regulators cannot assess implementation of the 

principles and may miss opportunities to protect borrowers.

Regulators are sharing findings from the file reviews and amended consent order 

activities among supervisory staff and plan to issue public reports on results, but 

they have not determined the content of those reports. The file reviews generally 

confirmed servicing weaknesses identified by regulators in 2010. Regulators are 

sharing information among examination teams that oversee servicers, and some 

regulator staff GAO spoke with are taking steps to address weaknesses 

identified. Regulators also have promoted transparency by releasing publicly 

information on the status of cash payments. However, these efforts provided 

limited information on the processes used, such as how decisions about 

borrower payments were made. Federal internal control standards and GAO’s 

prior work (GAO-03-102 and GAO-03-669) highlight the importance of providing 

relevant information on the processes used to obtain results. According to 

regulators, borrowers could obtain information from other sources, such as the 

payment administrator, but information on how decisions were made is not 

available from these sources. In the absence of information on the processes, 

regulators face risks to public confidence in the mortgage market, the restoration 

of which was one of the goals of the file review process.

View GAO-14-376. For more information, 

contact Lawrance L. Evans, Jr. at (202) 512-

8678 or evansl@gao.gov. 
Page i GAO-14-376 Foreclosure Review

Letter 1 

Background 4

Negotiations Were Largely Based on Projected Costs and 

Remediation Amounts and the Goals for the Cash Payments 

Were Generally Met 18

Regulators Did Not Establish Specific Objectives for Foreclosure 

Prevention Actions, and Oversight Is Limited 40

Regulators Are Sharing Findings of Servicing Weaknesses 

Confirmed through File Reviews and Cash Payment Process 53

Regulators Communicated the Status of Activities, but Information 

on Processes Has Been Limited 61

Conclusions 65

Recommendations for Executive Action 67

Agency Comments and Our Evaluation 67

Appendix I Objectives, Scope, and Methodology 69

Appendix II Office of the Comptroller of the Currency (OCC) and the Board 

of Governors of the Federal Reserve System (Federal Reserve) 

Actions in Response to GAO’s Recommendations on the 

Independent Foreclosure Review 79

Appendix III Comments from the Office of the Comptroller of the Currency 83

Appendix IV Comments from the Board of Governors of the Federal Reserve 

System 85

Appendix V GAO Contact and Staff Acknowledgements 87

Contents
Page ii GAO-14-376 Foreclosure Review

Tables

Table 1: Payment Obligations for the Amended Consent Order, by 

Servicer 12

Table 2: Participation in Selected Elements of the Original 

Consent Orders and Amended Consent Orders, by 

Servicer 15

Table 3: Summary of Preliminary Completion and Error Rates for 

Servicers That Signed February 2013 Amended Consent 

Orders, by Servicer 23

Table 4: Analysis of Projected Costs 71

Table 5: Analysis of Payments at Various Financial Harm Error 

Rates 72

Table 6: Analysis of Potential Remediation Using Initial Six 

Servicers’ Distribution of Borrowers 72

Table 7: OCC and Federal Reserve Actions in Response to 

GAO’s Recommendations on the Independent 

Foreclosure Review 80

Figures

Figure 1: Timeline of Key Dates of Regulators’ Actions Related to 

the Foreclosure Review and Amended Consent Orders 8

Figure 2: GAO Analysis of Projected Costs to Complete Reviews 

for Various Time Frames Compared to the Office of the 

Comptroller of the Currency (OCC) Analysis 26

Figure 3: GAO Analysis of Potential Remediation Payments at 

Various Error Rates Compared to the Office of the 

Comptroller of the Currency (OCC) Analysis 27

Figure 4: GAO Analysis of Potential Remediation Using Initial Six 

Servicers’ Distribution of Borrowers among Payment 

Categories Compared to the Office of the Comptroller of 

the Currency (OCC) Analysis 28

Figure 5: Number and Dollar Value of Cash Payment Checks 

Issued, by State Where Check Was Sent, as of 

December 2013 32

Figure 6: Timeline of Key Dates for the Cash Payment 

Categorization and Check Issuance Processes 34

Figure 7: Percentage of Borrowers in Each Amended Consent 

Order Cash Payment Framework Category 36

Figure 8: Treatment of Hypothetical Borrower for Three Different 

Servicers 40
Page iii GAO-14-376 Foreclosure Review

Abbreviations

CFPB Bureau of Consumer Financial Protection

FDIC Federal Deposit Insurance Corporation 

HAMP Home Affordable Modification Program

OCC Office of the Comptroller of the Currency 

SCRA Servicemembers Civil Relief Act

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Page 1 GAO-14-376 Foreclosure Review

441 G St. N.W.

Washington, DC 20548

April 29, 2014

The Honorable Maxine Waters

Ranking Member

Committee on Financial Services

House of Representatives

The Honorable Robert Menendez

Chairman

Subcommittee on Housing, Transportation, and Community Development

Committee on Banking, Housing, and Urban Affairs

United States Senate

The Honorable Luis V. Gutierrez

House of Representatives

In 2011 and 2012, the Office of the Comptroller of the Currency (OCC) 

and the Board of Governors of the Federal Reserve System (Federal 

Reserve) required 16 mortgage servicers to undertake the Independent 

Foreclosure Review (foreclosure review).1

 

1

The Office of Thrift Supervision was also party to four of the original consent orders. The 

Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), Pub. L. 

No. 111-203, §§ 311-313, 124 Stat. 1376, 1520-1523 (2010), eliminated the Office of 

Thrift Supervision and transferred its regulatory responsibilities to OCC, the Federal 

Deposit Insurance Corporation (FDIC), and the Federal Reserve. The transfer of these 

powers was completed on July 21, 2011, and the Office of Thrift Supervision was officially 

dissolved 90 days later (Oct. 19, 2011).

Under the foreclosure review, 

servicers were to engage consultants to review servicers’ loan files to 

identify borrowers who had suffered financial harm due to errors, 

misrepresentations, or other deficiencies in foreclosure processing in 

2009 and 2010 and recommend remediation for the harms these 

borrowers suffered. In 2013, with these reviews still in progress,

regulators announced amendments to existing consent orders with 15 

mortgage servicers requiring these servicers to discontinue reviews of 

files for errors and instead provide cash payments to borrowers eligible 

for the foreclosure review and to take foreclosure prevention actions, 
 

Page 2 GAO-14-376 Foreclosure Review

including loan modifications.2 In total, the amended consent orders 

required the 15 servicers to provide $3.9 billion in cash payments to 

roughly 4.4 million borrowers and provide $6 billion in foreclosure 

prevention actions. One servicer elected to continue the file review 

process for a portion of the 192,000 borrowers in the eligible population, 

and OCC anticipates the servicer will provide remediation payments to 

harmed borrowers in 2014.3

This report represents the third and final phase of our reviews of the 

foreclosure review process that you requested. In earlier reports, we 

examined lessons learned from the file review process that could be 

applied to oversight and transparency of the amended consent orders 

and continuing reviews, as well as servicers’ outreach efforts to inform 

borrowers about the file review process.4

1. the factors regulators considered in negotiating the servicer cash 

payment obligations under the amended consent orders and the 

extent to which regulators achieved their stated goals for the cash 

payments;

See appendix II for more 

information on these prior reports. This report addresses

 

2

The 15 servicers that amended existing consent orders with OCC and/or the Federal 

Reserve were: Ally Financial, Inc.; Aurora Bank, FSB; Bank of America, N.A.; Citibank, 

N.A.; EverBank Financial Corp.; Goldman Sachs; HSBC Bank, USA, N.A.; JPMorgan 

Chase, N.A.; MetLife Bank, N.A.; Morgan Stanley; PNC Bank, N.A.; Sovereign Bank; 

SunTrust Bank, Inc.; U.S. Bank, N.A.; and Wells Fargo Bank, N.A. Borrowers were eligible 

to be included in the foreclosure review and have their loan files reviewed for errors if

foreclosure actions took place on their primary residences between January 1, 2009, and 

December 31, 2010, by one of the participating servicers.

3

OneWest Bank, FSB, continued the file review process. As we describe later in the 

report, under the foreclosure review process not all eligible borrowers will necessarily 

have their files reviewed.

4

See GAO, Foreclosure Review: Opportunities Exist to Further Enhance Borrower 

Outreach Efforts, GAO-12-776 (Washington, D.C.: June 29, 2012) and Foreclosure 

Review: Lessons Learned Could Enhance Continuing Reviews and Activities Under the 

Amended Consent Orders, GAO-13-277 (Washington, D.C.: Mar. 26, 2013). We also 

testified before the Senate Subcommittee on Housing, Transportation, and Community 

Development of the Committee on Banking, Housing, and Urban Affairs based on our 

March 2013 report, see GAO, Foreclosure Review: Lessons Learned Could Enhance 

Continuing Reviews and Activities Under the Amended Consent Orders, GAO-13-550T 

(Washington, D.C.: Apr. 17, 2013). 
 

Page 3 GAO-14-376 Foreclosure Review

2. the objectives of the foreclosure prevention actions in the amended 

consent orders and how well regulators designed and oversaw the 

actions to achieve those objectives;

3. the extent to which regulators are sharing information from the file 

review and amended consent order processes; and

4. the extent to which regulators have promoted transparency of the 

amended consent orders and remaining review.

To address these objectives, we reviewed documents, conducted 

analyses, and held interviews with relevant stakeholders. Specifically, we 

reviewed the analyses regulators’ used to inform the negotiations and the 

data consultants provided to regulators on incurred and remaining costs, 

progress of reviews, and error findings. We also reviewed the amended 

consent orders, conclusion and decision memorandums, press releases, 

and relevant public statements made by regulatory officials. We also 

analyzed the reasonableness of the final negotiated cash payment 

amount. In addition, we reviewed regulators’ instructions to servicers for 

providing cash payments to borrowers, the results of this process, and 

information on check distribution. We also reviewed regulators’ reporting 

requirements and instructions provided to examination teams for 

monitoring and oversight of the foreclosure prevention activities, including 

the principles. We compared these instructions to the types of information 

regulators generally provide in their supervisory manuals and the 

processes used for verification and validation of data outlined in the 

federal internal control standards.

In addition, we analyzed consultants’ preliminary file review results and 

OCC’s examination teams’ conclusion memorandums from their oversight 

of the file reviews. We also reviewed information regulators 

communicated to the public and eligible borrowers. We compared 

regulators’ activities to existing criteria, including their supervisory policies 

and procedures, federal internal control standards, Office of Management 

and Budget guidelines, and our prior work related to oversight activities 
 

Page 4 GAO-14-376 Foreclosure Review

and communicating results.5

We conducted this performance audit from May 2013 to April 2014 in 

accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives.

This methodology included confirming key 

observations of our analysis of the documents with staff with selected 

examination teams, servicers, and consultants. We selected the 

examination teams and servicers based on the size of the servicers’ 

population of eligible borrowers for the foreclosure review and the identity 

of the servicers’ regulators to ensure a range of perspectives. We also 

identified consultants to interview to supplement information gathered 

from consultants in our prior work. Finally, we conducted interviews with 

staff from OCC headquarters; the Federal Reserve Board; and the 

Bureau of Consumer Financial Protection (commonly known as the 

Consumer Financial Protection Bureau or CFPB); three experts in 

settlements (including staff from the National Mortgage Settlement); and 

consumer groups. We discuss our scope and methodology in greater 

detail in appendix I.

Mortgage servicers are the entities that manage payment collections and 

other activities associated with home loans. Mortgage servicers can be 

 

5

OCC, Bank Supervision Process: Comptroller’s Handbook (Washington, D.C.: May 2013) 

and Policies and Procedures Manual: Bank Supervision Operations, Enforcement Action 

Policy (Washington, D.C.: July 2001). See also, the Board of Governors of the Federal 

Reserve System, Division of Banking Supervision and Regulation: Bank Holding Company 

Supervision Manual (Washington, D.C.: July 2013) and Division of Consumer and 

Community Affairs: Consumer Compliance Handbook (Washington, D.C.) accessed 

February 2014. In addition, see GAO, Internal Control Management and Evaluation Tool, 

GAO-01-1008G (Washington, D.C.: Aug. 2001) and Standards for Internal Control in the 

Federal Government, GAO/AIMD-00-21.3.1 (Washington, D.C.: Nov. 1999). See also, 

GAO, GAO Cost Estimating and Assessment Guide: Best Practices for Developing and 

Managing Capital Program Costs, GAO-09-3SP (Washington, D.C.: Mar. 2, 2009); Major 

Management Challenges and Program Risks: Department of Homeland Security, 

GAO-03-102 (Washington, D.C.: Jan. 2003); and Results-Oriented Cultures: 

Implementation Steps to Assist Mergers and Organizational Transformations, 

GAO-03-669 (Washington, D.C.: July 2, 2003). Finally, see Office of Management and 

Budget, Circular No. A-94, Guidelines and Discount Rates for Benefit-Cost Analysis of 

Federal Programs, October 29, 1992. 

Background
 

Page 5 GAO-14-376 Foreclosure Review

large mortgage finance companies, commercial banks, or nondepository 

institutions. Servicing duties can involve sending borrowers monthly 

account statements, answering customer-service inquiries, collecting 

monthly mortgage payments, and maintaining escrow accounts for 

property taxes and insurance. In the event that a borrower becomes 

delinquent on loan payments, servicers also initiate and conduct 

foreclosures. Errors, misrepresentations, and deficiencies in foreclosure 

processing can result in a number of harms to borrowers ranging from

inappropriate fees to untimely or wrongful foreclosure.

Several federal regulators share responsibility for regulating the banking 

industry in relation to the origination and servicing of mortgage loans. 

OCC has authority to oversee nationally chartered banks and federal 

savings associations (including mortgage banking activities).6 The 

Federal Reserve oversees insured state-chartered banks that are 

members of the Federal Reserve System, bank and thrift holding 

companies, and entities that may be owned by federally regulated 

depository institution holding companies but are not federally insured 

depository institutions.7 The Federal Deposit Insurance Corporation 

(FDIC) oversees insured state-chartered banks that are not members of 

the Federal Reserve System and state-chartered savings associations.8

 

6

12 U.S.C. §§ 481, 1813(q)(1).

Finally, CFPB has the authority to regulate mortgage servicers with 

7

12 U.S.C. §§ 321, 325, 1813(q)(3), 1844(c)(2)(A)(i)-(ii), 1867. 

8

12 U.S.C. §§ 1813(q)(2), 1819(a). In July 2011, OCC assumed oversight responsibility 

for federal savings associations from the Office of Thrift Supervision. Concurrently, FDIC 

assumed oversight responsibility for state-chartered associations from the Office of Thrift 

Supervision, and the Federal Reserve assumed oversight responsibility of savings and 

loan holding companies and lenders owned by a savings and loan holding company from 

the Office of Thrift Supervision. 
 

Page 6 GAO-14-376 Foreclosure Review

respect to federal consumer financial law.9

OCC and the Federal Reserve both use examination teams to provide 

day-to-day supervision of institutions they regulate that service 

mortgages. Under OCC, examination teams are assigned to each 

servicer and these teams are responsible for providing ongoing 

supervision, including identifying risks to the servicer’s safety and 

soundness or consumer compliance activities, among other issues; 

developing and executing supervisory plans; recommending enforcement 

actions to management; and monitoring for compliance with existing 

enforcement actions. For large servicers, these examination teams are 

on-site throughout the year.

In May 2012, CFBP entered 

into a memorandum of understanding with prudential regulators—

specifically the Federal Reserve, FDIC, OCC, and the National Credit 

Union Administration—that governs their responsibilities to share 

information and coordinate supervisory activities so as to effectively and 

efficiently carry out their responsibilities, decrease the risk of conflicting 

supervisory directives, and increase the potential for alignment of related 

supervisory activities.

10

 

9

The Dodd-Frank Act, enacted on July 21, 2010, established CFPB as an independent 

bureau within the Federal Reserve System. “Federal consumer financial law” is a defined 

term in the Dodd-Frank Act, among other sources, that includes more than a dozen 

existing federal consumer protection laws, including the Truth in Lending Act, the Real 

Estate Settlement Procedures Act, and the Equal Credit Opportunity Act, as well as the 

provisions of Title X of the act. 12 U.S.C. § 5481(12), (14). For insured depository 

institutions with more than $10 billion in assets, which may have mortgage servicing 

operations, or their affiliates, CFPB has the exclusive supervisory authority and primary 

enforcement authority regarding federal consumer financial laws. Additionally, if a servicer 

is a nondepository institution, CFPB has both exclusive supervisory and enforcement 

authority (except with respect to the Federal Trade Commission) to oversee compliance 

with federal consumer financial law. Finally, CFPB has certain rulemaking authorities as 

set forth in applicable statutes with respect to mortgage servicers, including authority that 

transferred from other federal agencies. 

For mid-size servicers, the examination 

teams are often responsible for supervision of several institutions. 

Similarly, subject to its oversight and direction, the Federal Reserve 

Board assigns responsibility for ongoing supervision of servicers to the 

10OCC designates each national bank as a large, mid-size, or community bank. The 

designation is based on the institution’s asset size and whether other special factors affect 

its risk profile, such as the extent of asset management operations, international activities, 

or high-risk products and services. Large banks are the largest and most complex national 

banks and are designated by the Senior Deputy Comptroller for Large Bank Supervision. 

Mid-size banks may be designated as large banks at the discretion of the Deputy 

Comptroller for Midsize and Credit Card Banks. 
 

Page 7 GAO-14-376 Foreclosure Review

responsible Federal Reserve Bank, which in turn assigns a central point 

of contact to each servicer.11 The contact leads an examination team with 

responsibility for continually monitoring activities, conducting discovery 

examinations designed to improve understanding of a particular business 

activity or control process, and testing whether a control process is 

appropriately designed and achieving its objectives.

In September 2010, allegations surfaced that several servicers’ 

documents in support of judicial foreclosure may have been 

inappropriately signed or notarized.12 In response to this and other 

servicing issues, federal banking regulators—OCC, the Federal Reserve, 

the Office of Thrift Supervision, and FDIC—conducted a coordinated onsite review of 14 mortgage servicers to evaluate the adequacy of 

servicers’ controls over foreclosure processes and to assess servicers’ 

policies and procedures for compliance with applicable federal and state 

laws.13 Through this coordinated review, regulators found critical 

weaknesses in servicers’ foreclosure governance processes; foreclosure 

documentation preparation processes; and oversight and monitoring of 

third-party vendors, including foreclosure attorneys.14

 

11The Reserve Bank responsible for supervision of a servicer is generally determined by 

the Reserve Bank in the district where the head office of the institution is located and 

where its overall strategic direction is established and overseen.

On the basis of their 

findings from the coordinated review, OCC, the Office of Thrift 

Supervision, and the Federal Reserve issued in April 2011 formal consent 

orders against 14 servicers under their supervision (see fig. 1).

12This practice, which includes bank employees or contractors automatically signing 

foreclosure documents without verifying the details contained in the paperwork or the 

validity of the accompanying affidavits, became widely known as “robo-signing.” In a 

judicial foreclosure a judge presides over the process in a court proceeding. Servicers 

initiate a formal foreclosure action by filing a lawsuit with a court and in some states may 

submit supporting documents, such as notarized sworn statements, or affidavits, as part of 

the lawsuit. Failure to review documents filed in support of a judicial foreclosure may 

violate consumer protection and foreclosure laws, which vary by state and which establish 

certain procedures that mortgage servicers must follow when conducting foreclosures. 

13CFPB was established on July 21, 2011, and the first agency director was appointed in 

January 2012, after the coordinated reviews and issuance of the consent orders. 

Therefore, CFPB did not play a role in these reviews.

14See OCC, Federal Reserve, the Office of Thrift Supervision, Interagency Review of 

Foreclosure Policies and Practices (Washington, D.C.: Apr. 2011).

Original Consent Orders 

Required a Foreclosure 

Review
 

Page 8 GAO-14-376 Foreclosure Review

Figure 1: Timeline of Key Dates of Regulators’ Actions Related to the Foreclosure Review and Amended Consent Orders

Note: In the amended consent order announced in July 2013, the servicer has until June 2015 to 

meet its foreclosure prevention obligation, but the amended order states that the servicer would

satisfy its obligation in July 2013. The amended consent order for the servicer that agreed to amend 

its order in August 2013 states that the servicer would meet its foreclosure prevention obligation by 

January 2014, but OCC staff stated that the servicer was provided an extension through March 2014.

Subsequently, the Federal Reserve issued similar consent orders against 

two additional servicers.15

 

15The Federal Reserve issued a formal consent order against Goldman Sachs (Litton 

Loan Servicing, LP) in September 2011 and Morgan Stanley (Saxon Mortgage Services, 

Inc.) in April 2012.

These consent orders were intended to ensure 

safe and sound mortgage-servicing and foreclosure-processing activities 

and help address weaknesses with mortgage servicing identified during 

the reviews. To comply with the consent orders, each of the 16 servicers 

is required to, among other things, enhance its vendor management, 

training programs and processes, and compliance with all applicable 

federal and state laws, rules, regulations, court orders, and servicing 
 

Page 9 GAO-14-376 Foreclosure Review

guidelines. In addition, as a result of the consent orders, the Federal 

Reserve issued civil money penalties against some of the servicers and 

provided that the penalty amounts could be remitted by federal payments 

made and borrower assistance provided under the National Mortgage 

Settlement or by providing funding to housing counseling organizations.16

The consent orders also required each servicer to retain an independent 

consultant to review certain foreclosure actions on primary residences 

from January 1, 2009, to December 31, 2010, to identify borrowers who 

suffered financial injury as a result of errors, misrepresentations, or other 

deficiencies in foreclosure actions, and to recommend remediation for 

borrowers, as appropriate. In general, the consent orders identified seven 

areas for consultants to review:

OCC also considered civil money penalties against the servicers it 

regulates, and for four servicers that were also party to the National 

Mortgage Settlement, OCC reached an agreement that civil money 

penalties would be assessed if the servicer did not satisfy the 

requirements of the formal consent orders or their respective obligations 

under the National Mortgage Settlement.

1. whether the servicer had proper documentation of ownership of the 

loan;

2. whether the foreclosure was in accordance with applicable state and 

federal laws;

3. whether a foreclosure sale occurred while a loan modification was 

under consideration;

4. whether nonjudicial foreclosures followed the terms of the loan and 

state law requirements;17

 

16The Federal Reserve issued civil money penalties against MetLife, Inc. and the five 

servicers participating in the National Mortgage Settlement and their subsidiaries (Ally 

Financial (GMAC), Bank of America, Citi, JP Morgan Chase (EMC), and Wells Fargo) 

under the Federal Reserve’s authority to sanction the servicers’ parent holding 

companies. As we note later in the report, the National Mortgage Settlement was an 

agreement between several federal agencies, 49 state Attorneys General, and five 

servicers.

17A nonjudicial foreclosure process takes place outside the courtroom, and is typically 

conducted by the trustee named in the deed of trust. Trustees, and sometimes servicers, 

generally send a notice of default to the borrower and publish a notice of sale in area 

newspapers or legal publications.
 

Page 10 GAO-14-376 Foreclosure Review

5. whether fees charged to the borrower were permissible, reasonable, 

and customary;

6. whether loss-mitigation activities were handled in accordance with

program requirements and policies; and

7. whether any errors, misrepresentations, or other deficiencies resulted 

in financial injury to the borrower.

To review these areas, consultants generally segmented their file review 

activities to test for each area of potential error separately. As a result, a 

borrower’s loan file might have undergone multiple reviews for different 

potential errors before the results of each of the review segments were 

compiled and the file review was considered complete.

Loans were identified for review through a process by which eligible 

borrowers could request a review of their particular circumstances 

(referred to as the request-for-review process) and through a review of 

categories of files considered at high risk for errors (referred to as the 

look-back review). Regulators required servicers to establish an outreach 

process for eligible borrowers who believed they might have been harmed 

due to errors in the foreclosure process to request a review of their 

particular circumstances.18

 

18For 14 of the 16 servicers that were party to the foreclosure review process, a borrower 

who met the initial eligibility criteria—that is, the mortgage on his or her primary residence 

was in some stage of foreclosure at any point in 2009 or 2010—and who believed he or 

she had been financially injured as a result of problems during the foreclosure process, 

could submit a request-for-review by December 31, 2012. For two servicers—Goldman 

Sachs and Morgan Stanley—the request-for-review process had not begun at the point 

when the agreement to amend the consent orders was announced and those borrowers 

were not provided an opportunity to request reviews. 

Consultants were expected to review all of the 

loans received through the request-for-review process. For the look-back 

review, regulators required consultants to review 100 percent of all files in 

three categories—borrowers in bankruptcy in which a completed 

foreclosure took place, loans potentially subject to the protections 

provided by the Servicemembers Civil Relief Act (SCRA), and agencyreferred foreclosure cases—that were identified as at high risk for 

servicing or foreclosure-related errors during the regulators’ 2010 
 

Page 11 GAO-14-376 Foreclosure Review

coordinated reviews.19 Consultants for Federal Reserve-regulated 

servicers were also required to review 100 percent of files in two other 

categories determined to be high risk—borrowers with pending 

modification requests and borrowers current on a trial or permanent 

modification. In addition, as each servicer had a unique borrower 

population and servicing systems, consultants, with examination teams’ 

input, were expected to identify various high-risk loan categories 

appropriate to their servicer—such as loans in certain states or loans 

associated with certain foreclosure law firms—that could be associated 

with a higher likelihood of servicing or foreclosure-related errors and 

review a sample of those loans.20

Beginning in January 2013, OCC and the Federal Reserve announced 

that they had reached agreements with 15 of the 16 servicing companies 

to terminate the foreclosure reviews and replace the reviews with a 

payment agreement (as previously shown in fig. 1). Under these 

agreements, servicers agreed to provide compensation totaling 

approximately $10 billion, including $4 billion in cash payments to eligible 

borrowers and $6 billion in foreclosure prevention actions. These 

amounts were generally divided among the 15 participating servicers 

according to the number of borrowers who were eligible for the 

foreclosure review at the time the amended orders were negotiated such 

that the total per-servicer amount ranged from $16 million to $2.9 billion 

(see table 1). For the majority of servicers, the amended consent orders 

ended an approximately 20-month file review process. Although 

 

19SCRA prohibits servicers from foreclosing on properties owned by eligible active duty 

members of the military without court orders and caps interest rates at 6 percent, among 

other things. Pub. L. No. 108-189, §§207, 303, 117 Stat. 2835, 2844, 2847 (2003) 

(codified at 50 U.S.C. app. §§ 527, 533). This provision applies to loans originated before 

the servicemembers’ active military service. §207. For the foreclosure review, to assess 

compliance with SCRA provisions, consultants generally reviewed foreclosure dates and 

interest rates servicers charged to servicemembers. We have previously discussed 

borrowers’ eligibility for SCRA protections, extent of violations by depository institutions, 

regulators’ oversight of SCRA, and the military servicers’ efforts to educate 

servicemembers on SCRA. See GAO, Mortgage Foreclosures: Regulatory Oversight of 

Compliance with Servicemembers Civil Relief Act Has Been Limited, GAO-12-700 

(Washington, D.C.: July 17, 2012). Agency-referred foreclosure cases are cases referred 

to the servicer by state or federal agencies for information or follow-up.

20The regulator-issued sampling guidance also suggested that consultants conduct 

random sampling to verify that certain categories were low risk. For additional discussion 

of consultants’ sampling activities, see GAO-13-277. 

In 2013, the Foreclosure 

Review Was Replaced for 

Most Servicers with Cash 

Payments and 

Foreclosure Prevention 

Actions
 

Page 12 GAO-14-376 Foreclosure Review

consultants were at various stages of completing the reviews when the 

work was discontinued, the amended consent orders underlined that 

regulators retained the right to obtain and access all material, records, or 

information generated by the servicer or the consultant in connection with 

the file review process. The amended consent orders did not affect the 

other aspects of the original consent orders—such as required 

improvements to borrower communication, operation of management 

information systems, and management of third-party vendors for 

foreclosure-related functions—and work to oversee servicer compliance 

with these other aspects continues.

Table 1: Payment Obligations for the Amended Consent Order, by Servicer 

Servicer

Percentage 

of the eligible 

borrower 

population

Cash payment 

amount 

(in millions of 

dollars) a

Foreclosure 

prevention action 

amount (in millions 

of dollars) b

Total 

amount 

(in millions 

of dollars)

Ally (GMAC) 5.0% $198 $317 $515 

Aurora 2.4 93 149 242 

Bank of America 27.9 1,100 1,800 2,900 

Citibank 7.7 307 487 793

EverBank 0.7 37 44 c 82 

Goldman Sachs 2.8 135 195 330 

HSBC 2.4 97 153 251 

JPMorgan Chase 19.0 757 1,200 2,000 

MetLife 0.9 39 48 87 

Morgan Stanley 2.1 97 130 227 

PNC 1.8 69 111 181

Sovereign 0.2 6 10 16 

SunTrust 1.6 63 100 163 

U.S. Bank 2.0 80 128 208 

Wells Fargo 19.4 766 1,200 2,000

Total 95.8% $3,900 $6,000 $10,000

Source: GAO analysis of OCC and Federal Reserve documents.

Note: Numbers are rounded.

a

The eligible population also includes approximately 192,000 borrowers or 4.2 percent of the total 

eligible population serviced by OneWest.

b

Regulators subsequently required four servicers to make additional payments into the cash payment 

fund. These additional payments totaled $13 million.

c

The cash payment amount paid by EverBank was determined based on its file review results. The 

final amount was larger than the amount it would have paid based on its portion of the total eligible 

population.
 

Page 13 GAO-14-376 Foreclosure Review

According to regulatory staff and documents, the estimated time it would 

take for borrowers to receive remediation and mounting costs of 

completing the file reviews motivated the decision to amend the consent 

orders. As of December 2012, OCC staff estimated that remediation 

payments to borrowers would not start for many months and that 

completing the file review process could take, at a minimum, an additional 

1 to 2 years, based on the number of files still to be reviewed and the 

extent of the work to be completed. The mounting costs of the file reviews 

also motivated the decision to terminate the file reviews for most 

servicers. As of August 2012, the collective costs for the consultants had 

reached $1.7 billion, according to OCC’s decision memorandum. Based 

on the results of the reviews conducted by consultants through December 

2012, regulators estimated that borrower remediation amounts would 

likely be small while the consultant costs to complete the reviews would 

be significant. As a result, OCC and Federal Reserve staff determined 

that completing the reviews to determine precisely which borrowers had

compensable errors due to harm would have resulted in long delays in 

providing remediation payments to harmed borrowers.

With the adoption of the amended consent orders, regulators and 

servicers moved away from identifying the types and extent of harm an 

individual borrower may have experienced and focused instead on 

issuing payments to all eligible borrowers based on identifiable 

characteristics. To determine the cash payment amount to be provided to 

each borrower, the majority of participating servicers categorized 

borrowers according to specific criteria. Fourteen of the servicers that 

participated in the amended consent order process, covering 

approximately 95 percent of the population of 4.4 million borrowers that 

were eligible for the foreclosure review process under the original consent 

orders, adopted this approach (see table 2). To categorize borrowers, 

regulators provided each servicer with a cash payment framework that 

included 11 categories of potential harms—including violation of SCRA 

protections and foreclosure on borrowers in bankruptcy—and generally 
 

Page 14 GAO-14-376 Foreclosure Review

ordered the categories by severity of potential harm.21 For each of the 11 

categories in the cash payment framework, regulators identified specific 

borrower and loan characteristics that servicers then used to place all 

eligible borrowers into categories such that a borrower would be placed in 

the highest category for which he or she had the required characteristics. 

Regulators used the results of this categorization process as the basis for 

determining the payment amounts for each category. The payment 

amounts for all eligible borrowers for those 14 servicers ranged from 

several hundred dollars for a servicer that did not engage the borrower in 

a loan modification to $125,000, plus equity and interest, for a servicer 

that foreclosed on a borrower who was eligible for SCRA protection. One 

other servicer signed an amended consent order to terminate the file 

review process and provide cash payments to borrowers. In contrast to 

the other servicers that signed amended consent orders, this servicer had 

completed its initial file review activities and OCC used the preliminary file 

review results as the basis for determining payments to all eligible 

borrowers.22

 

21The specific categories, generally in order of severity of potential harm, are as follows: 

(1a) Servicer foreclosed on borrower eligible for SCRA protection, (1b) Servicer charged 

servicemember interest rates that exceeded SCRA §207 limits, (2) Servicer initiated or 

completed foreclosure on a borrower who was not in default, (3) Servicer initiated or 

completed foreclosure on a borrower who was protected by federal bankruptcy 

protections, (4) Servicer completed foreclosure on a borrower who was meeting all 

requirements of a documented forbearance plan, (5) Servicer failed to convert a borrower 

to a permanent loan modification after three successful payments under a written trialperiod plan, (6) Servicer completed foreclosure on a borrower who was performing all 

requirements of a written trial-period plan, (7) Modification request approved, (8) 

Modification request denied, (9) Modification request received but no underwriting 

decision made, (10) Servicer did not engage with borrower in a loan modification or other 

loss mitigation action, (11) All other loans.

22According to OCC staff, the consultant had completed file reviews for all borrowers that 

submitted a request-for-review, the initial sample of loans identified through the look-back 

process, and some additional reviews resulting from the results of the initial sample. In 

addition to requiring cash payments and foreclosure prevention actions, OCC also 

required the servicer to solicit and evaluate loan modification requests for borrowers 

eligible through the foreclosure review process whose foreclosure had not been 

completed; establish a special complaint resolution process for borrowers complaining 

about errors on credit reports; and establish a new audit process at the point of 

modification, payoff, or reinstatement to validate any fees assessed and not yet collected 

on all borrowers eligible through the foreclosure review process.
 

Page 15 GAO-14-376 Foreclosure Review

Table 2: Participation in Selected Elements of the Original Consent Orders and Amended Consent Orders, by Servicer

Amended consent order requirements 

Servicer

Conducted 

request-for-review 

process

Cash payments 

based on specific 

criteria 

Cash payments 

based on file 

review results 

Foreclosure 

prevention 

actions 

Remediated harmed 

borrowers based on 

file review results

Ally (GMAC) X X X 

Aurora X X X 

Bank of America X X X 

Citibank X X X 

EverBank X X X 

Goldman Sachs X X 

HSBC X X X 

JPMorgan Chase X X X 

MetLife X X X 

Morgan Stanley X X 

OneWest X X 

PNC X X X 

Sovereign X X X 

SunTrust X X X 

U.S. Bank X X X 

Wells Fargo X X X 

Source: GAO analysis of OCC and Federal Reserve information.

Note: Borrowers received payments based on three different approaches. Specifically, 13 servicers 

determined borrower cash payment amounts based on servicer assignment of borrowers into 

categories using loan and borrower characteristics. Second, one servicer determined borrower cash 

payment amounts based on the results of file reviews conducted by its consultant as part of the file 

review process. Third, one servicer will provide cash payments to borrowers based on the final file 

review results for reviews completed by its consultant such that payments will be for identified errors, 

misrepresentations, or other deficiencies in foreclosure processing that resulted in financial harm.

The amended consent orders also required all 15 servicers to undertake 

a specified dollar amount of foreclosure prevention actions and submit 

those actions for credit based on criteria established by regulators. For 13 

of the servicers, these actions are to occur between January 2013 and 
 

Page 16 GAO-14-376 Foreclosure Review

January 2015.23 The amended orders provided two methods for servicers 

to receive credit for foreclosure prevention actions. First, servicers could 

conduct loss-mitigation activities for individual borrowers, by providing 

loan modifications or short sales, among other actions.24

One servicer, OneWest Bank, did not elect to amend its consent order 

and terminate the file review process. The consultant for this servicer 

continues file review activities for a portion of the eligible population of 

192,000 borrowers, as planned.

Regulators also 

specified that the actions taken under this method could not be used to 

satisfy other similar requirements, such as the foreclosure prevention 

requirement of the National Mortgage Settlement (discussed later). 

Second, servicers could satisfy their obligation by making cash payments 

to approved housing counseling agencies, among other actions.

25

 

23The two servicers that signed amended consent orders after February 2013 are also 

taking steps to satisfy the foreclosure prevention requirement prior to January 2015. 

Specifically, the amended consent order for Ally Financial (GMAC) provided the servicer 

through June 2015 to meet its foreclosure prevention obligation, but also specified that, in 

July 2013, Ally Financial (GMAC) would deposit $32 million in cash into the cash payment 

fund that is used to provide cash payments to eligible borrowers. This is in addition to their 

initial $198 million deposit into the cash payment fund. According to the amended consent 

order, EverBank agreed to satisfy its foreclosure prevention requirement by making a 

payment to organizations that have a principal mission to provide affordable housing or 

other foreclosure prevention assistance or education. According to the amended consent 

order, these activities are to be completed within 90 days of the signing of the amended 

order, that is, January 2014, but according to OCC staff, EverBank was provided an 

extension to March 2014.

According to OCC, in 2014, the servicer 

will provide remediation to borrowers based on findings of actual harm.

24A borrower may be offered a loan modification when the borrower can no longer afford 

the monthly payments on the original mortgage but can afford reduced payments. Loan 

modification involves making temporary or permanent changes to the terms of the existing 

loan agreement, either by capitalizing the past due amounts, reducing the interest rate, 

extending the loan term, reducing the total amount of the loan through principal 

forgiveness or forbearance, or a combination of these actions. In a short sale, the investor 

agrees to accept proceeds from the sale of the home to a third party even though the sale 

price is less than the sum of the principal, accrued interest, and other expenses owed. 

Short sales are often the first nonhome retention workout option considered, because the 

investors do not have to take ownership of the property. 

25According to documents from OneWest Bank’s consultant, approximately 28,500 loans 

were reviewed as part of the initial file review process (the extent of review for each loan 

varied depending on the sampling and the issues raised in the borrower’s request for 

review). Based on the results and with OCC’s approval, the consultant subsequently 

conducted additional testing of loans in categories with high error prevalence.
 

Page 17 GAO-14-376 Foreclosure Review

In addition to the consent orders issued by OCC, the Office of Thrift 

Supervision, and the Federal Reserve, mortgage servicers have been 

subject to other actions designed to improve the provision of mortgage 

servicing by setting servicing standards. In February 2012, the 

Departments of Justice, Treasury, and Housing and Urban Development, 

along with 49 state Attorneys General, reached a settlement with the 

country’s five largest mortgage servicers. Under the settlement, the 

servicers will provide approximately $25 billion in relief to distressed 

borrowers and the servicers agreed to a set of mortgage servicing 

standards.26 This settlement, known as the National Mortgage Settlement, 

established nationwide servicing reforms for the participating servicers, 

including establishing a single point of contact for borrowers, standards 

for communication with borrowers, and expectations for fee amounts and 

the execution of foreclosure documentation. The settlement also 

established an independent monitor to oversee the servicers’ execution of 

the agreement, including their adherence to the mortgage servicing 

standards. CFPB also established new mortgage servicing rules that took 

effect in January 2014.27

In addition to the National Mortgage Settlement, other recent settlements 

have required servicers to provide foreclosure relief to borrowers as a 

component of the agreement. In November 2013, the Department of 

Justice along with state Attorneys General for four states announced a 

Among other things, these rules established 

requirements for servicers’ crediting of mortgage payments, resolution of 

borrower complaints, and actions servicers are required to take when 

borrowers are late in their mortgage payments.

 

26United States v. Bank of America Corp., No. 1:12-CV-00361 (D.D.C. Apr. 4, 2012). The 

settlement provides benefits to borrowers in the 49 signing states whose loans are owned 

by the settling banks—Ally Financial (GMAC), Bank of America, Citibank, JPMorgan 

Chase, and Wells Fargo—as well as to many of the borrowers whose loans they service. 

Borrowers from Oklahoma are not eligible for any of the relief directly to homeowners, 

because Oklahoma elected not to join the settlement.

27On January 17, 2013, CFPB released final rules to implement provisions of the DoddFrank Act related to mortgage servicing. Specifically, CFPB amended Regulation X, which 

implements the Real Estate Settlement Procedures Act, to address servicers’ obligations 

to correct errors raised by borrowers; to provide certain information requested by 

borrowers, including loss mitigation options available to delinquent borrowers; and to 

provide borrowers with continuity of contact with appropriate servicer personnel. 12 C.F.R. 

pt. 1024. Regulation Z, which implements the Truth in Lending Act, was revised to require 

servicers to provide borrowers with enhanced information, including notices regarding 

interest rate adjustments and responses to requests for payoff amounts. 12 C.F.R. pt.

1026. The rules took effect January 10, 2014. 

Other Mortgage Servicing 

Actions
 

Page 18 GAO-14-376 Foreclosure Review

settlement with JPMorgan Chase to provide $4 billion in foreclosure relief, 

among other actions, to remediate harms allegedly resulting from 

unlawful conduct.28 The settlement identified specific actions for which 

JPMorgan Chase would receive credit towards its obligation, including 

certain types of loan modification actions, lending to low- to moderateincome borrowers and borrowers in disaster areas, and activities to 

support antiblight programs. Similarly, in December 2013, CFPB and 49 

state Attorneys General and the District of Columbia announced a 

settlement with Ocwen Financial Corporation to provide $2 billion in relief 

to homeowners at risk of foreclosure by reducing the principal on their 

loans. Both settlements also assign an independent monitor to oversee 

the execution of the settlements, and the settlement with Ocwen requires 

the servicer to comply with the standards for servicing loans established 

in the National Mortgage Settlement.

Regulators considered factors such as projected costs and potential 

remediation amounts associated with the file reviews to negotiate the 

$3.9 billion total cash payment under the amended consent orders. 

However, because the reviews were incomplete, these data were limited. 

According to Federal Reserve staff, OCC led the data analysis to inform 

negotiations, and the Federal Reserve relied on aspects of this work. 

Despite the uncertainty regarding the remaining costs and actual financial 

harm experienced by borrowers, regulators did not test the major 

assumptions used to inform negotiations. According to our prior work, 

testing major assumptions provides decision makers a range of best- and 

worst-case scenarios to consider and provides information to assess 

whether an estimate is reasonable. We compared the final negotiated 

cash payment amount to estimates we obtained by varying the key 

assumptions used in regulators’ analysis. Our analysis found that the final 

negotiated amount was generally within the range of different results 

based on alternative assumptions. Regulators established goals related 

to timeliness, the cash payment amounts, and the consistency of the 

treatment of borrowers and the distribution of payments. Regulators met 

their timeliness and amount goals and took steps to promote a consistent 

process, including providing guidance to examination teams and 

servicers. 

 

28The four states are California, Delaware, Illinois, and Massachusetts.

Negotiations Were 

Largely Based on 

Projected Costs and 

Remediation Amounts 

and the Goals for the 

Cash Payments Were 

Generally Met
 

Page 19 GAO-14-376 Foreclosure Review

The cash payment agreement obligations under the amended consent 

orders were achieved through negotiations between regulators and 

participating servicers.29 According to OCC, staff engaged with six 

servicers in November 2012 to discuss a cash payment agreement. As 

previously discussed, the estimated time it would take for borrowers to 

receive remediation and mounting costs of completing the reviews 

motivated the cash payment agreement under the amended consent 

orders. Following initial discussions with these six servicers, regulators 

engaged in similar discussions with an additional eight servicers subject 

to the foreclosure review requirement, according to regulatory staff.30 The 

total negotiated cash payment amount for all 15 servicers that ultimately 

participated in amended consent orders was approximately $3.9 billion.31

Generally, each servicer’s share of the cash payment amount was 

determined based on its proportional share of the 4.4 million borrowers 

who were eligible for the foreclosure review.32

Regulators considered factors such as projected costs to complete file 

reviews and potential remediation amounts associated with the file 

reviews to inform negotiations with servicers. According to Federal 

Reserve staff, OCC led negotiations with servicers and the initial analysis 

of estimates that informed these negotiations. According to Federal 

Reserve staff, they participated in negotiations and relied on certain 

 

29The amended consent orders established the total servicer obligations. Regulators did 

not finalize the cash payment amounts individual borrowers would receive for various 

categories until after the agreement was finalized. 

30Fourteen of the 16 servicers subject to the foreclosure review participated in 

negotiations for the payment agreement. OCC stated that Goldman Sachs and Morgan 

Stanley were not included in negotiations. As noted earlier, regulators issued consent 

orders against most servicers in April 2011. However, the Federal Reserve issued consent 

orders against Goldman Sachs and Morgan Stanley in September 2011 and April 2012, 

respectively, and the process for submitting request-for-reviews had not yet begun when 

the agreement to amend the consent orders was announced. As such, Goldman Sachs 

and Morgan Stanley had separate payment factors used for their borrowers.

31In addition to the cash payment amount to be distributed to borrowers who were eligible 

for the foreclosure review, the amended consent orders required servicers to provide an 

additional $6 billion in foreclosure prevention actions. The foreclosure prevention actions 

were not limited to borrowers who were eligible for the foreclosure review. The foreclosure 

prevention action component of the amended consent orders is discussed later in this 

report.

32The cash payment amount paid by one servicer, EverBank, was determined based on 

its file review results. The final amount was larger than the amount it would have paid as a 

percentage of the total eligible population.

Regulators Considered 

Projected Costs and 

Potential Remediation 

Amounts to Inform 

Negotiations
 

Page 20 GAO-14-376 Foreclosure Review

elements of OCC’s analysis to inform the Federal Reserve’s decisions 

regarding a payment agreement for the institutions they oversee. To 

inform negotiations with servicers, OCC developed two estimates of 

servicers’ costs: an estimate of the projected cost to complete the reviews 

and an estimate for the potential remediation payout to borrowers. 

Specifically, OCC staff said they used the cost estimate as a means of 

estimating what servicers might be willing to pay and the potential 

remediation payout as an early attempt to estimate potential harm and 

understand how funds would be distributed among borrowers. The final 

amount of $3.9 billion was negotiated between regulators and servicers 

and was higher than the estimates regulators used to inform negotiations.

• Projected cost to complete the reviews. According to regulatory staff 

and documents, OCC and the Federal Reserve relied on cost 

projections from consultants which estimated that the remaining 

expected fees for consultants to complete the reviews would be at 

least $2 billion.33 In November 2012, consultants reported cost 

projections based on time frames ranging from as short as 4 months 

for one servicer to as long as 13 months for other servicers—that is, 4 

to 13 months beyond November 2012—to complete reviews.34

Regulatory staff told us they also considered the amounts servicers 

had reserved to pay for potential remediation. Specifically, OCC 

included an estimate of the amount servicers had reserved to pay for 

potential remediation ($859 million), bringing the total estimated cost 

to complete the reviews had they not been terminated to 

approximately $2.9 billion ($2 billion to complete the reviews plus the 

$859 in remediation reserves).35

 

33This figure does not include projected costs for Goldman Sachs and Morgan Stanley as 

they did not participate in negotiations for the payment agreement.

According to regulatory staff and 

documents, the Federal Reserve relied on projected costs and 

34Consultants for two servicers did not estimate a completion date.

35According to OCC, some servicers set aside funds to cover the potential remediation 

payments to borrowers under the foreclosure review. These set-asides are referred to as 

remediation reserves. For servicers that established reserves, OCC collected information 

about the reserve amounts directly from servicers or their quarterly filings. For servicers 

that did not establish reserves, OCC used the other servicers’ reserves as a proxy and 

scaled the amounts according to their proportion of the in-scope population.
 

Page 21 GAO-14-376 Foreclosure Review

remediation reserves provided by OCC to inform their decisions 

during negotiations.36

• Potential remediation payout to borrowers. Using the aggregate 

financial harm error rate—that is, the financial harm error rate for all 

completed files among all servicers—of 6.5 percent in December 

2012, OCC estimated the potential remediation payout to borrowers 

from the reviews would be $1.2 billion, according to OCC 

documents.37 In this analysis, regulators used amounts listed in the 

foreclosure review remediation framework and added an additional 

$1,000 per borrower for borrowers who submitted a request-for-review 

and were in the process of foreclosure. For borrowers who submitted 

a request-for-review and had a completed foreclosure, OCC added an 

additional $2,000 per borrower.38

The data that were available to regulators to inform negotiations for the 

cash payment amount were limited. Because the reviews were 

incomplete in November 2012 when negotiations began, data were 

In addition, OCC staff told us they 

estimated the distribution of borrowers among the payment categories 

by extrapolating the results of one servicer’s initial categorization to all 

servicers. Specifically, they used one servicer’s preliminary 

distribution of borrowers to estimate the proportion of borrowers in 

each category. According to OCC staff and documents, they then 

applied these proportions to the borrower populations for other 

servicers and applied the 6.5 percent financial harm error rate to each 

category. According to OCC staff, they used the distribution of one 

servicer’s population because it provided retail servicing nationwide.

OCC staff stated that they analyzed the distribution of borrowers for 

two additional servicers and reached similar results. Federal Reserve 

staff told us they did not rely on OCC’s financial harm error rate 

analysis to inform their decisions during negotiations; rather, as stated 

previously, they relied on cost projections and remediation reserves to 

inform their decisions during negotiations.

 

36The OCC data the Federal Reserve used estimated servicers’ remediation reserves at 

$875 million. OCC subsequently updated this estimate to $859 million after obtaining 

additional information from servicers.

37This figure does not include projected costs for Goldman Sachs and Morgan Stanley as 

they did not participate in negotiations for the payment agreement.

38For categories that did not have an assigned amount in the remediation framework, 

OCC assigned an amount.
 

Page 22 GAO-14-376 Foreclosure Review

limited due to uncertainty about the (1) costs associated with completing 

the reviews and (2) error rate for the entire population of 4.4 million 

borrowers eligible for review. First, given the incomplete state of the 

reviews in November 2012 when negotiations began, regulators had 

limited information about costs associated with completing the reviews. 

For example, cost projections available to regulators prior to the 

negotiations did not account for additional requests-for-review submitted 

in December 2012. The period for eligible borrowers to submit requestsfor-review did not expire until December 31, 2012—after negotiations 

between regulators and servicers began. Between November 29, 2012, 

and December 27, 2012, the number of requests-for-review increased by 

more than 135,000 requests (44 percent). In addition, for most 

consultants, the cost projections did not account for the planned second 

phase of reviews, known as deeper dives, in which consultants would 

have conducted additional reviews based on errors identified in the first 

phase of reviews.39

Second, the incomplete nature of the reviews in December 2012 limited 

the extent to which regulators could estimate the financial harm error rate 

and potential remediation. The remediation reserves established by some 

servicers were based on reviews that had been conducted by consultants 

thus far. Similarly, the extent to which OCC could use the preliminary 

error rate of 6.5 percent for the completed reviews to reliably estimate the 

prevalence of harm in the population and potential remediation was 

limited. According to data provided to regulators, third-party consultants of 

servicers that had agreed to the payment agreement in January 2013 had 

completed final reviews for approximately 14 percent of the files slated for 

review, and none of the consultants had completed their sampled file 

reviews, making it difficult for OCC to reliably estimate the prevalence of 

harm or potential remediation payout for the entire 4.4 million borrowers 

Among the servicers that participated in the payment 

agreements, all consultants we spoke with anticipated that they would 

conduct deeper dives. In its decision memorandum for the amended 

consent orders, OCC estimated an additional 1 to 2 years to complete the

reviews. OCC staff stated based on the scope and complexity of the 

remaining reviews, they believed the reviews would have taken longer 

than consultants projected in November 2012. 

 

39By December 2012, none of the consultants had begun deeper dives.
 

Page 23 GAO-14-376 Foreclosure Review

eligible for the reviews.40 In addition, reports provided to regulators by 

consultants of the servicers who agreed to the payment agreement in 

January 2013 showed variation in progress and financial harm error rates 

across servicers (see table 3).41

Table 3: Summary of Preliminary Completion and Error Rates for Servicers That Signed February 2013 Amended Consent 

Orders, by Servicer

For example, servicer “K” reported over 

90 percent of the sampled file reviews complete for foreclosures in 

progress and foreclosures complete, with error rates of about 26.7 

percent and 15.6 percent, respectively. In contrast, servicer “A” reported it 

had not completed any final reviews. Further, the segments and types of 

reviews that were completed varied among consultants. For example, one 

consultant told us they prioritized sampled files for review over requested 

file reviews, while another consultant told us they focused on completing 

requested reviews. Another consultant stated they prioritized requested 

reviews and pending foreclosures.

Foreclosure in progress Foreclosure complete

Sampled file reviews Requested file reviews Sampled file reviews Requested file reviews Total

Servicer

Final 

review 

complete

Financial 

error rate

Final

review 

complete

Financial 

error rate

Final

review 

complete

Financial 

error rate

Final review 

complete

Financial 

error 

rate

Final 

review 

compete

Financial 

error rate

A 0.0% N/A 0.0% N/A 0.0% N/A 0.0% N/A 0.0% N/A

B 1.3 0.0% 1.9 0.0% 1.7 0.0% 1.5 0.0% 1.6 0.0%

C 1.3 2.7 0.4 5.3 1.7 15.5 0.3 3.6 0.9 8.9

D 11.4 11.5 4.3 0.0 21.7 22.7 1.2 0.0 6.0 8.9

E 20.0 0.0 0.2 0.0 19.5 0.0 0.4 0.0 4.2 0.0

F 30.9 10.1 0.6 0.0 36.2 2.6 4.5 18.2 25.9 6.3

G 33.6 19.3 3.7 0.5 38.3 24.6 7.3 0.8 9.6 11.4

H 42.0 2.0 0.1 0.0 55.5 0.9 0.3 0.0 27.1 1.2

 

40The April 2011 consent orders expressly allowed third-party consultants to use sampling 

techniques to select foreclosure files that would allow consultants to identify patterns in 

errors. The benefits of sampling include the ability to generalize results to the sampled 

populations. 

41These servicers agreed in principle to the amended consent orders in January 2013, but 

the formal amended consent orders memorializing these agreements were announced in 

February 2013. The amended consent orders implementing the payment agreement 

required the consultants of the participating servicers to submit data on the progress of the 

file reviews as of December 31, 2012. These data, which the consultants submitted to 

regulators in the months following the payment agreement, are summarized in table 3. 
 

Page 24 GAO-14-376 Foreclosure Review

Foreclosure in progress Foreclosure complete

Sampled file reviews Requested file reviews Sampled file reviews Requested file reviews Total

Servicer

Final 

review 

complete

Financial 

error rate

Final

review 

complete

Financial 

error rate

Final

review 

complete

Financial 

error rate

Final review 

complete

Financial 

error 

rate

Final 

review 

compete

Financial 

error rate

I 46.7 0.2 0.9 18.2 14.6 1.1 1.2 26.2 22.3 0.6

J 52.0 0.5 4.3 0.0 65.9 4.6 7.9 5.2 26.1 3.3

K 98.1 26.7 27.5 32.1 99.2 15.6 33.4 17.8 57.3 23.9

Source: GAO analysis of OCC and Federal Reserve data from consultants.

Note: This table includes data on the following servicers that agreed in principle to the payment 

agreement in January 2013: Aurora, Bank of America, Citibank, HSBC, JPMorgan Chase, MetLife, 

PNC, Sovereign, SunTrust, US Bank, and Wells Fargo. Because the reviews were incomplete we 

obscured the identities of individual servicers. Goldman Sachs and Morgan Stanley also agreed to 

payment agreements in January 2013, but these servicers are not included in this table because the 

process for submitting requests-for-reviews for these servicers had not yet begun. Consent orders for 

most servicers were issued in April 2011. However, consent orders for Goldman Sachs and Morgan 

Stanley were issued in September 2011 and April 2012, respectively.

The final negotiated cash payment amount of $3.9 billion exceeded the 

two separate cost estimates of $2.9 billion and $1.2 billion that OCC 

generated to inform negotiations. However, OCC performed only limited 

analyses. For example, OCC did not vary key assumptions about costs 

and error rates used in its estimates, which would have been appropriate 

given the limitations of the available data. The Federal Reserve did not 

conduct any additional analyses to inform negotiations, but relied, in part, 

on data and analysis provided by OCC pertaining to projected costs and 

remediation reserves to inform its decisions regarding the payment 

agreement. As part of our review, we conducted a sensitivity analysis to 

test changes to major assumptions associated with the data regulators 

used to inform negotiations.42

 

42Office of Management and Budget guidance states that sensitivity testing is a useful tool 

for examining the effects of changing assumptions on estimates. Analyzing the uncertainty 

associated with the incomplete information and testing the sensitivity of major 

assumptions are key elements of estimating costs and benefits. The guidance defines a 

sensitivity analysis as examining the effects of changing assumptions and ground rules on 

estimates. See Office of Management and Budget, Circular No. A-94, Guidelines and 

Discount Rates for Benefit-Cost Analysis of Federal Programs, October 29, 1992. Further, 

GAO’s Cost Estimating and Assessment Guide states that a sensitivity analysis provides a 

range of results that span a best and worst case spread and also helps identify factors 

that could cause an estimate to vary. See GAO, Cost Estimating and Assessment Guide: 

Best Practices for Developing and Managing Capital Program Costs, 

Specifically, we tested assumptions related 

GAO-09-3SP 

(Washington, D.C.: Mar. 2009). Although regulators did not conduct a typical cost-benefit 

analysis, their analyses were intended to estimate the remaining costs of third-party 

consultants and the costs associated with remediating borrowers. 

Although Regulators 

Conducted Limited 

Analysis, the Final Cash 

Payment Amount 

Generally Fell within a 

Reasonable Range
 

Page 25 GAO-14-376 Foreclosure Review

to projected costs, error rate, and borrower categorization. Further, to 

assess the reasonableness of the final negotiated amount, we used the 

results of our sensitivity analysis to compare the final negotiated cash 

payment amount to the amounts calculated when we varied key 

assumptions.43 We found that the final negotiated amount of $3.9 billion 

was generally more than amounts suggested under various scenarios we 

analyzed.44

• Projected costs. In its analysis using consultants’ reported projected 

costs, OCC estimated that the cost to complete the reviews would 

have been $2.9 billion. However, as we noted earlier, cost projections 

were limited and did not take into account the additional requests for 

review submitted by borrowers in December 2012 or the time 

associated with anticipated deeper dives. We calculated monthly 

costs using consultants’ reports that were available from September 

2012 through December 2012 and estimated the projected total cost 

to complete reviews under several alternative scenarios.

(See app. I for more detail on this analysis.)

45

 

43GAO’s Cost Estimating and Assessment Guide describes a reasonableness review as a 

type of independent cost estimate review that addresses only a program’s high-value, 

high-risk, and high-interest elements to analyze whether the estimate is sufficient with 

regard to the validity of cost and schedule assumptions and cost estimate methodology 

rationale and whether it is complete. See 

Our 

analysis showed that the total costs could have been either higher or 

lower than the estimates OCC used in its analysis, depending on how 

long the reviews would have taken if they had continued. For 

example, we estimated that if the reviews had taken an additional 13 

months to complete (the longest projected time reported by 

consultants in November 2012), the cost would have been nearly $2.5 

billion—about $460 million (23 percent), more than the regulators’ 

estimate of $2 billion. Conversely, if the reviews had taken less time to 

complete than the consultants projected, regulators’ analyses may 

have overestimated costs. We then added OCC’s remediation reserve 

GAO-09-3SP. 

44Similar to OCC’s analyses, our analyses are based on data from incomplete reviews 

and do not reflect the actual financial harm individual borrowers may have experienced. 

45Servicers began reporting cost data in late August 2012. As such, we used cost 

estimates beginning in September 2012. Cost reports for September 2012 through 

December 2012 were not available for all servicers. As such, we used all available reports 

in that range. For 10 servicers, data were available for 2 months, for 2 servicers data were 

available for 3 months, and for 2 servicers, data were available for 4 months. Where data 

were available, we calculated average monthly costs. Where data were not available to 

calculate an average, we calculated the actual monthly cost for 1 month.
 

Page 26 GAO-14-376 Foreclosure Review

estimate of $859 million to our cost estimates. Including the 

remediation reserves, our estimate for projected costs based on 13 

additional months of review was $3.3 billion (see fig. 2). Both our 

estimated amount at 13 months and OCC’s estimation of $2.9 billion 

are less than the actual final negotiated amount of $3.9 billion. 

Because OCC stated the reviews could take up to an additional 2 

years, we included an additional 24 months in our analyses, which 

resulted in an estimate of $4.6 billion. OCC staff stated that, based on 

the experience of the servicer that continued with the reviews and had 

a relatively small number of borrowers eligible for review, an 

additional 2 years or more to complete the reviews was a likely 

scenario for other servicers had they not participated in the amended 

consent orders.

Figure 2: GAO Analysis of Projected Costs to Complete Reviews for Various Time 

Frames Compared to the Office of the Comptroller of the Currency (OCC) Analysis

• Financial harm error rate. As an alternative measure, OCC estimated 

remediation payouts based on a preliminary financial harm error rate 

of 6.5 percent for file reviews completed as of December 2012 across 

all servicers. On the basis of that analysis, OCC estimated that 

remediation payouts from the file reviews could be $1.2 billion.
 

Page 27 GAO-14-376 Foreclosure Review

However, as discussed above, the progress and findings of errors and 

financial harm among servicers varied significantly. We analyzed the 

projected remediation payments using the lowest, median, and 

highest preliminary error rates for the 13 servicers that participated in 

the payment agreement in January 2013.46 Our analysis generated a 

range of estimated remediation payouts between 71 percent below 

and almost 206 percent above the amount generated by OCC’s 

analysis using the average error rate of 6.5 percent (see fig. 3).

However, the final, negotiated cash payment of $3.9 billion was higher 

than the payment of $3.7 billion that we calculated at the highest 

reported servicer error rate.

Figure 3: GAO Analysis of Potential Remediation Payments at Various Error Rates 

Compared to the Office of the Comptroller of the Currency (OCC) Analysis

 

46The amended consent orders implementing the payment agreement required the 

consultants of the participating servicers to submit data on the progress of the file reviews 

as of December 31, 2012. We used these data for our analysis.
 

Page 28 GAO-14-376 Foreclosure Review

• Borrower categorization. As stated previously, OCC estimated the 

distribution of borrowers among the payment categories in its error 

rate analysis by extrapolating the results of one servicer’s initial 

borrower categorization to all servicers. OCC and the Federal 

Reserve told us that each servicer’s borrower population was unique.

As such, different servicers could have different borrower distributions 

among the payment categories. We analyzed the distribution of 

borrowers for the other five servicers involved in initial amended 

consent order negotiations based on preliminary data servicers 

provided to regulators. Our analysis showed that the final, negotiated 

cash payment of $3.9 billion was higher than the estimates that would 

have resulted from using any of the other five servicers’ borrower 

distributions (see fig. 4).

Figure 4: GAO Analysis of Potential Remediation Using Initial Six Servicers’ 

Distribution of Borrowers among Payment Categories Compared to the Office of the 

Comptroller of the Currency (OCC) Analysis

Prior to agreeing on a final cash payment amount, both the Federal 

Reserve and OCC conducted additional analyses to corroborate that the 

negotiated cash payment amount was acceptable. For example, the 

Federal Reserve estimated payment amounts to borrowers by category 
 

Page 29 GAO-14-376 Foreclosure Review

under the tentative agreement to confirm that the negotiated amount 

would not result in trivial payments to borrowers. This analysis showed 

that a $3.8 billion total cash payment would provide payments to 

borrowers in each category ranging from several hundred dollars up to 

$125,000. Therefore, after considering these cost estimates as well as 

the timelines for project completion, the Federal Reserve determined that 

the negotiated amount was acceptable because it exceeded the 

combined expected fees and remediation reserve estimates of completing 

the reviews and would allow for nontrivial payment amounts to borrowers 

in each category. OCC staff stated they conducted similar, informal 

analyses of the tentative settlement agreement. Specifically, OCC staff 

stated they considered the error rate for proposed cash payment amounts 

during negotiation. For example, staff estimated that the actual error rate 

from completed reviews would have had to exceed nearly 26 percent 

before remediation payments under the reviews would exceed the 

negotiated cash payment amount. Therefore, according to this analysis, 

OCC determined that the negotiated amount was acceptable. Staff also 

stated they believed the negotiated amount would be more than sufficient 

to cover the total amount servicers would have paid to harmed borrowers 

under the foreclosure review.

Regulators stated that both the limited nature of the information available 

during the negotiation and the process for determining the amounts paid 

by servicers under the amended consent orders were not typical.

According to Federal Reserve staff, in a typical process, they would 

conduct investigations to determine actual harm and perform analyses to 

determine compensation amounts. For example, for a recent enforcement 

order against a subprime mortgage lender, which involved a much 

smaller population of potentially harmed borrowers than the foreclosure 

review, the Federal Reserve required the servicer to analyze individual 

files to determine the specific amount of harm. OCC staff stated that 

because the negotiated payment agreement involved the discontinuation 

of the reviews required by the original consent orders, they did not have 

data that would otherwise typically have been available. Both OCC and 

Federal Reserve staff told us there are no prior enforcement actions that 

are comparable to the payment agreement under the amended consent 

orders. OCC staff stated that the amended consent orders are atypical in 

terms of the number of borrowers eligible for reviews (over 4 million), the 

number of projected file reviews (over 739,000), and the extensive nature 

of each review. In addition, regulators stated that, given the limited 

progress of the file reviews, they did not believe extensive analysis was 

possible. While regulators did have more analytical methods available to 

them, we recognize that they had limited data available.
 

Page 30 GAO-14-376 Foreclosure Review

Generally, regulators set three goals for the process of categorizing and 

distributing cash payments to borrowers:47

1. provide compensation to a large number of borrowers before 2014,

2. provide cash payments to borrowers of between several hundred 

dollars and $125,000, and

3. reduce the possibility of inconsistent treatment of borrowers among 

servicers, when compared with the file review results.

Regulators took steps to meet their goal for the timeliness of distribution 

of cash payments to a large number of borrowers. As of December 2013, 

checks had been distributed to approximately 4 million borrowers covered 

by the 13 servicers that were part of the January 2013 amended consent 

order announcements. As shown in figure 5, California and Florida were 

the states with the largest number of checks issued as well as the largest 

total amount paid to borrowers.48

 

47As we noted earlier, in total, 15 servicers signed amended consent orders to terminate 

file reviews and provide cash payments to borrowers, among other actions. However, two 

of these servicers were required to complete their payment process over a different time 

period or use a different approach and are not part of this assessment. Specifically, in light 

of the progress of the file review process for 1 of the 15 servicers, the servicer was 

required to pay borrowers based on the initial file review results rather than the cash 

payment framework. Under this methodology, borrowers who received a file review where 

an error was identified were paid according to the remediation framework established for 

the file review, plus, for those borrowers whose remediation amount was less than $1,050, 

an additional amount to ensure they received a minimum payment of $1,050. The 

remaining 78 percent of borrowers who were not reviewed received a flat payment amount 

of $1,050. According to OCC staff, these payments will be sent to borrowers during the 

first half of 2014. In addition, 1 of the other servicers not covered by this assessment 

signed the amended consent order in July 2013, approximately 6 months after the orders 

were signed for the other 13 servicers. The cash payment categorization process was 

similar to what regulators oversaw for the other 13 servicers, but according to Federal 

Reserve staff the timeline and payment amounts varied. According to the Federal 

Reserve, the third-party administrator began distributing $230 million in checks to 

approximately 232,000 borrowers in January 2014. 

Specifically, borrowers in California and 

Florida received about 32 percent of the total issued checks (1.3 million 

checks collectively worth approximately $1.2 billion). In addition, 

borrowers in seven states (Arizona, Georgia, Illinois, Michigan, Nevada, 

Ohio, and Texas) received checks worth a total of between $100 million 

and $200 million per state. Although the checks were sent to the mailing 

48State-level data represent the mailing address of the recipient and not the address of 

the property eligible for the foreclosure review.

Regulators Generally Met 

Their Goals for the Cash 

Payments
 

Page 31 GAO-14-376 Foreclosure Review

address of the borrower rather than the property address of the affected 

property, according to our analysis of Mortgage Bankers Association 

data, these states correspond to some of the states with the highest 

foreclosure inventories in 2009 and 2010.49

 

49Mortgage Banker Association reports quarterly data on the performance of single-lien 

family residential mortgages in the National Delinquency Survey, which it estimates 

represented about 88 percent of the first-lien residential mortgage market during the fourth 

quarter of 2010. The foreclosure inventory measure represents all loans in the foreclosure 

process at the end of the reporting quarter.

In comparison, borrowers in 

five states and the District of Columbia received checks worth a total of 

less than $5 million per state (Alaska, District of Columbia, North Dakota, 

South Dakota, Vermont, and Wyoming).
 

Page 32 GAO-14-376 Foreclosure Review

Figure 5: Number and Dollar Value of Cash Payment Checks Issued, by State Where Check Was Sent, as of December 2013 

Note: As part of the amended consent orders, 13 servicers that agreed to amend their orders in 

January 2013 provided cash payments of between several hundred dollars and $125,000 to eligible 

borrowers from the foreclosure review. Checks were sent to the mailing address of the eligible 

borrower, rather than the address of the property eligible for foreclosure review.

To facilitate meeting the goal of a timely borrower categorization process, 

regulators defined specific loan and borrower characteristics—such as 

extent of delinquency, forbearance or repayment plan start date, 

foreclosure sale date, or bankruptcy filing date—for each cash payment 

category in advance. They expected servicers to use these 

characteristics to categorize borrowers based on the data in servicers’ 

computer systems—review of files by hand to make a judgment about a 
 

Page 33 GAO-14-376 Foreclosure Review

borrower’s category was generally not permitted.50

The cash payment categorization process was largely completed by April 

2013 for the 13 servicers, and the payment administrator began issuing 

checks to each of the approximately 4.2 million eligible borrowers 

serviced by the 13 servicers that were part of the January 2013 amended 

consent order announcements. As figure 6 shows, the payment 

administrator issued approximately 89 percent of checks to borrowers in 

April 2013 with the majority of the remaining checks issued by July 2013. 

As of early January 2014, approximately 193 payments remained to be 

issued. The payment administrator had not issued these checks because 

of borrower-specific challenges, including problems with the borrower’s 

taxpayer identification number or the need to issue multiple checks for the 

same loan. The payment administrator issued approximately 96,000 

checks for amounts that were less than the borrower should have 

received. Supplementary checks worth about $45 million were issued to 

the affected borrowers in May 2013. As of the beginning of January 2014, 

approximately 81 percent of the issued checks had been cashed. 

According to OCC staff, to help promote check cashing, regulators 

instructed the payment administrator to conduct additional research on a 

Regulators also 

expected servicers to conduct an internal review of their categorization 

results—for example, several servicers engaged their internal audit 

department, which are separate from the servicers’ mortgage servicing 

operations, to conduct a preliminary validation of the results to identify 

problems or weaknesses with categorization activities. According to 

several examination staff that we spoke with, they met regularly with the 

staff responsible for internal reviews to discuss their approach and review 

their results. This step contributed to a more timely verification process by 

the examination teams as they were already familiar with the servicer’s 

internal review procedures and results. Finally, regulators asked servicers 

to select one third-party payment administrator to facilitate issuance of 

checks. According to OCC staff, regulators worked closely with this 

payment administrator concurrently with the categorization process to 

define the work processes for check distribution to help facilitate a timely 

distribution of checks to borrowers once the categorization process was 

complete.

 

50As we discuss later in the report, servicers had the option of engaging the consultants 

who conducted the file reviews for the foreclosure review process to complete file reviews 

for borrowers in the two highest categories—SCRA-eligible borrowers and borrowers in 

foreclosure who were not in default.
 

Page 34 GAO-14-376 Foreclosure Review

borrower’s address and re-issue checks to borrowers whose initial checks 

had expired and had not been cashed to try and increase the checkcashing rate.51

Figure 6: Timeline of Key Dates for the Cash Payment Categorization and Check Issuance Processes

Note: As of early January 2014, approximately 193 payments remained to be issued. Due to 

rounding, the percentage of checks issued is 100 percent.

Under the cash payment process, borrowers generally received cash 

payments of between $300 and $125,000, in line with regulators’ goal of 

providing those amounts to borrowers.52

 

51As a fraud prevention measure recommended by the payment administrator, issued 

checks expired after 90 days.

In general, the amounts paid to 

borrowers in the same category varied depending on whether the 

borrower had submitted a request-for-review—those borrowers received 

a higher payment amount than other borrowers—and whether the 

foreclosure was in process, had been rescinded, or was complete as of 

52Borrowers in the two categories that received the highest payment amounts of up to 

$125,000 (servicer foreclosed on borrower eligible for SCRA protections or servicer 

initiated or completed foreclosure on borrower who was not in default) may have received 

additional payments that resulted in total cash payment amounts greater than $125,000 

due to additional payments for lost equity and interest. 
 

Page 35 GAO-14-376 Foreclosure Review

December 31, 2011.53 In addition, those borrowers serviced by two 

servicers that signed the original consent orders after April 2011 and 

therefore had not participated in the request-for-review process were 

generally paid at the same level or at a higher level—24 percent to 30 

percent more—than a borrower who did not submit a request-for-review.54

As seen in figure 7, the largest number of borrowers (1.2 million 

borrowers, or 29 percent of the eligible population) were placed in the 

category for approved modification requests, which provided payments of 

between $300 and $500, depending on whether the borrower was 

considered to have submitted a request-for-review. About 1,200 

borrowers were paid at the maximum rate of $125,000, including 

approximately 1,100 SCRA-eligible borrowers.55

 

53To determine payment amounts, regulators considered the loan’s status (in process of 

foreclosure, foreclosure completed, rescinded foreclosure) as of December 31, 2011. A 

loan that had been in the process of foreclosure at any time during 2009 and 2010 but had 

not completed foreclosure or had been rescinded was considered to be in process to 

determine the payment amount.

Approximately 11 

percent (439,000 borrowers) were paid an additional amount designated 

for borrowers who had submitted requests-for-review.

54As we noted earlier, Goldman Sachs and Morgan Stanley signed the original consent 

orders in September 2011 and April 2012, respectively.

55Servicers had the option of retaining the third-party consultant hired to work on the 

foreclosure review to complete file reviews for borrowers in the SCRA and borrower not in 

default at the time of foreclosure categories and provide remediation to harmed borrowers. 

As we discuss later in the report, most servicers used this option. As a result, some

borrowers were categorized into these two categories based on file review results. Other 

borrowers were categorized into these categories based on their loan and borrower 

characteristics. Borrowers whose files were reviewed where harm was not identified were 

recategorized in the next highest payment category based on their loan and borrower 

characteristics.
 

Page 36 GAO-14-376 Foreclosure Review

Figure 7: Percentage of Borrowers in Each Amended Consent Order Cash Payment Framework Category

Note: The order of the categories reflects regulators’ determination of the potential severity of an 

error, if an error had occurred. The first or higher categories are generally associated with larger cash 

payment amounts than lower categories. SCRA Section 527 limits (§207) caps interest rates at 6 

percent for properties owned by eligible active duty members of the military.

Although regulators met their cash payment amount goal, they 

recognized that some borrowers might have received more or less 

through the foreclosure review process. According to regulators, as part 

of their process to determine the cash payment amounts to be paid to 

borrowers in each category, they considered the amount that borrowers 

would have been paid for errors in that category under the file review 

process, among other considerations. Under the cash payment 

framework, borrowers in the highest paid categories—SCRA-eligible 

borrowers and borrowers foreclosed upon who were not in default—

received the same amounts as they would have under the file review 

process. For the other categories, the final cash payment amounts were 

generally less than the amounts that would have been paid for an error in 

that category under the file review process for borrowers who did not 
 

Page 37 GAO-14-376 Foreclosure Review

submit a request-for-review.56 According to regulators, they decided to 

pay higher amounts to borrowers who submitted requests-for-review—

generally double the amounts paid to borrowers who did not submit 

requests-for-review—because they felt that those borrowers had an 

expectation of receiving a file review and should be compensated for that 

expectation.57

According to regulators, in recognition of challenges in achieving 

consistent results among servicers during the file review process, they 

took steps to promote a consistent approach to the cash payment 

categorization process—one of their goals—such that similarly situated 

borrowers would have similar results.

According to regulators, in adopting the cash payment 

process, they recognized that some borrowers would fare better or worse

that they might have under the file review process. For example, some 

borrowers who might not have received remediation under the file review 

process, either because a file review did not identify harm or the file was 

not reviewed, would receive a cash payment. However regulators said the 

converse was also true, that is, borrowers who through the file review 

could have been found to have been harmed and therefore eligible for 

remediation could potentially receive a lower amount through the cash 

payment process. OCC and Federal Reserve staff also stated that under 

the amended consent orders, borrowers were not required to waive or 

release any rights or claims against the servicer to receive a cash 

payment.

58

 

56For some payment categories, such as bankruptcy, the remediation amounts to be paid 

under the file reviews were not specified as the amounts were to be determined on a 

case-by-case basis. 

For example, regulators held 

weekly meetings with OCC and Federal Reserve examination team staff 

as well as with servicers to discuss the categorization process. In 

addition, they provided guidance to examination teams and servicers for 

57For example, in the “modification request denied” category, a borrower with a completed 

foreclosure would receive $3,000 if he or she had not submitted a request-for-review and 

double that amount ($6,000) if a request-for-review had been submitted. However, for two 

of the categories—modification request approved and all other loans—the difference was 

less than double so that borrowers who did not submit a request received $300 and 

borrowers who submitted a request were provided a cash payment of $500.

58As we have previously reported, the complexity of the file review process, overly broad 

guidance, and limited monitoring for consistency impeded regulators’ ability to ensure 

consistent results for borrowers through the file review process. See GAO-13-277 for 

discussion of the file review process and regulators’ oversight activities, including 

oversight related to consistency. 
 

Page 38 GAO-14-376 Foreclosure Review

the categorization process, including examination teams’ oversight 

activities. According to examination teams, the guidance provided was 

timely, and given the limited time to complete the categorization process, 

they generally worked closely with the servicer to ensure any resulting 

changes were incorporated. OCC headquarters staff also conducted onsite visits to each servicer and examination team to review the 

categorization process and activities. According to OCC staff, these onsite visits allowed for a comparison of servicers’ categorization processes 

and the oversight processes used by the examination teams to help 

ensure these activities were done according to the guidance and as a 

result would be largely consistent. Similarly, the Federal Reserve 

examination teams and Federal Reserve Board staff met in person to 

discuss the categorization process and oversight activities as part of their 

efforts to promote consistent results. Finally, according to a few servicers 

we spoke with, to promote consistent results some servicers met early in 

the process, with regulators’ input, to discuss the regulators’ 

categorization guidance and mentored other servicers as they conducted 

their initial categorization activities to help ensure there was a shared 

interpretation of the guidance among servicers.

However, there were some differences in the categorization results for 

borrowers among servicers as a result of flexibilities in the categorization 

process, as well as limitations with some servicers’ data systems. For 

example, servicers were given the option of retaining the third-party 

consultant hired to work on the foreclosure reviews to complete file 

reviews for borrowers who were categorized into the first two 

categories—SCRA-eligible borrowers and borrowers not in default at the 

time of foreclosure—rather than relying on the loan and borrower 

characteristics regulators’ specified for those categories. Based on the file 

review results, servicers were required to provide remediation to 

borrowers whom the file reviews determined had been harmed and recategorize the remaining borrowers into the next highest payment 

category for which they qualified according to other loan and borrower 

characteristics. Based on our review of regulators’ documents, 12 of the 

13 servicers used this option and directed consultants to complete file 

reviews for borrowers who were placed in some of these categories.59

 

59Specifically, we found that 11 of the 13 servicers used the consultant to conduct file 

reviews for borrowers in the SCRA categories. Six of the servicers engaged the consultant 

to conduct file reviews or verify the servicer’s results for the other category, that is, 

borrowers not in default at the time of the foreclosure. 
 

Page 39 GAO-14-376 Foreclosure Review

According to OCC staff and one servicer we spoke with, some 

consultants had already completed or were near completion of the file 

reviews for SCRA-eligible borrowers.

Similarly, missing or unreliable data in servicers’ systems resulted in 

some servicers being unable to categorize borrowers according to the 

cash payment framework criteria and instead placing borrowers in the 

highest category for which they had data. According to our review of 

examination teams’ conclusion memorandums and interviews with 

examination teams, at least 5 of the 13 servicers were unable to place 

some borrowers into the most appropriate category of the framework 

because servicers’ systems did not have the data necessary to categorize 

borrowers according to the loan and borrower characteristics provided by 

regulators. For the majority of these servicers, the percentage of affected 

borrowers was relatively small. For example, in one case data limitations 

affected roughly 4 percent of borrowers at that servicer, whereas in 

another case, they impacted approximately 8 percent of that servicer’s 

borrowers. However, for one servicer, data limitations were extensive 

enough that regulators required the servicer to stop the categorization 

process for approximately 74 percent of eligible borrowers and categorize 

those borrowers into higher categories than their characteristics might 

have indicated if data had been available in the servicer’s system. 

According to regulators, they mitigated the impact of these limitations on 

individual borrowers by instructing servicers to place borrowers in the 

highest possible category from which they could not be excluded due to 

missing or unreliable data. Figure 8 illustrates an example of how the 

same borrower might have had different results depending on the 

servicer.
 

Page 40 GAO-14-376 Foreclosure Review

Figure 8: Treatment of Hypothetical Borrower for Three Different Servicers

Note: These three servicers paid borrowers according to the same cash payment framework with the 

same potential cash payment amounts for each category.

Placing borrowers in higher categories when data were unavailable 

potentially had a distributional impact on other borrowers. Where there is 

a set sum of money, as in this case, making changes by placing more 

borrowers than anticipated in higher categories could result in either (1) 

lower payment amounts per borrowers in those categories or (2) lowerthan-anticipated amounts for borrowers in lower categories. According to 

Federal Reserve staff the relatively small number of borrowers affected 

by these changes meant that the distributional impact was minimal.

Regulators did not establish specific objectives for the $6 billion obligation 

they negotiated with servicers to provide foreclosure prevention actions. 

However, they communicated the expectation that the actions be 

meaningful, and they set forth broad principles for servicers’ entire 

portfolio of foreclosure prevention actions. To negotiate the amount and 

determine the design of the foreclosure prevention component of the 

amended orders, regulators did not follow their typical practices to inform 

supervisory actions, which include analysis of information. For example, 

analysis of the volume of servicers’ recent foreclosure prevention actions 

might have helped regulators assess the sufficiency and feasibility of the 

required obligation, among other things. According to most servicers we 

spoke with, they would be able to meet the required volume of activities 

using their existing foreclosure prevention activities. Regulators did collect 

data to inform oversight of servicers’ financial obligations, and OCC and 

the Federal Reserve are requiring examination teams to oversee 

Regulators Did Not 

Establish Specific 

Objectives for 

Foreclosure 

Prevention Actions, 

and Oversight Is 

Limited
 

Page 41 GAO-14-376 Foreclosure Review

servicers’ policies and monitoring controls related to the principles. 

However, according to Federal Reserve staff, most of the Federal 

Reserve examination teams have not conducted their oversight activities 

related to the foreclosure prevention principles and regulators’ guidance 

for oversight of the principles does not identify actions examination teams 

should take to evaluate or test implementation of these principles. 

According to regulators’ supervisory guidance as well as federal internal 

control standards, establishing specific monitoring activities, including 

testing, is important to effective supervision. In the absence of such 

monitoring activities, regulators may not know if a key element of the 

amended consent orders is being realized.

The $6 billion foreclosure prevention action obligation amount was 

negotiated by regulators and servicers and was not framed by specific 

objectives or informed by any data or analysis. According to OCC’s and 

the Federal Reserve’s supervisory manuals, enforcement actions, 

including consent orders, are used to address specific problems, 

concerns, violations of laws or agreements, and unsafe or unsound 

practices, among other things, that are identified through supervisory 

examinations.60 Further, federal internal control standards highlight the 

importance of establishing clear objectives for activities undertaken by 

agencies as a means of ensuring that agency outcomes are achieved.61

 

60See OCC, Bank Supervision Process: Comptroller’s Handbook (Washington, D.C.: May 

2013) and Policies and Procedures Manual: Bank Supervision Operations, Enforcement 

Action Policy (Washington, D.C.: July 2001). Also, see Board of Governors of the Federal 

Reserve System, Division of Banking Supervision and Regulation: Bank Holding Company 

Supervision Manual (Washington, D.C.: July 2013).

The foreclosure prevention component of the amended consent orders, 

however, was not intended to address specific problems, violations, or 

unsafe or unsound practices. According to the Federal Reserve, the $6 

billion required foreclosure prevention actions represent additional 

remediation, above and beyond the $3.9 billion cash payment required of 

servicers in lieu of finishing the reviews. OCC staff stated that the 

foreclosure prevention component of the amended consent orders 

mirrored the requirement that servicers provide loss mitigation options to 

harmed borrowers under the file review process. Although regulators 

negotiated the foreclosure prevention action obligations in the 

amendment that terminated the foreclosure review for most servicers, the 

61See GAO-01-1008G and GAO/AIMD-00-21.3.1.

Regulators Negotiated 

Foreclosure Prevention 

Obligations without the 

Benefit of Specific 

Objectives or Analysis
 

Page 42 GAO-14-376 Foreclosure Review

foreclosure prevention obligations were not related to preliminary findings 

from the reviews. In addition, the actions were not specifically intended to 

assist only borrowers who were eligible for the reviews; servicers can 

count foreclosure prevention actions performed to assist any borrower in 

their portfolio toward their obligation under the amended consent order 

provided the action meets the criteria in the orders.62 The amended 

consent orders, however, directed servicers to attempt to prioritize these 

borrowers for assistance to the extent practicable. Regulators stated that 

they included the foreclosure prevention component in the amended 

consent orders because the National Mortgage Settlement had a similar 

component.63

While regulators did not define specific objectives for the foreclosure 

prevention component, they communicated some expectations for the $6 

billion obligation and established broad principles for servicers’ 

foreclosure prevention actions in general. For example, in a speech, the 

Comptroller of the Currency noted that the foreclosure prevention 

obligations in the amended consent orders would result in meaningful 

relief to borrowers still struggling to keep their homes and could impact 

those families and their communities.

Further, regulators stated that the foreclosure prevention 

component in the amended consent orders was intended to convey to 

servicers the importance of foreclosure prevention activities.

64 The Chairman of the Board of 

Governors of the Federal Reserve System, in testimony before Congress, 

noted that the foreclosure prevention obligations provided relief to 

borrowers rather than payments to consultants for the foreclosure 

review.65

 

62As we described previously, the amended consent orders identify specific activities, 

such as loan modifications and short sales, for which servicers can receive credit.

In addition, the amended consent orders state broad principles 

for servicers’ ongoing foreclosure prevention and loss mitigation actions

in general, including providing affordable, sustainable, and meaningful 

relief for qualified borrowers with a preference for activities designed to 

63Among other things, the National Mortgage Settlement required servicers to provide aid 

to homeowners needing loan modifications through principal reduction, refinancing, or 

other forms of relief. 

64Thomas J. Curry, Comptroller of the Currency, remarks before Women in Housing and 

Finance (Washington, D.C.: Feb. 13, 2013).

65Ben S. Bernanke, Chairman of the Board of Governors of the Federal Reserve System, 

Monetary Policy and the State of the Economy, testimony before the House Committee on 

Financial Services, 113th Cong., 1st sess., February 27, 2013.
 

Page 43 GAO-14-376 Foreclosure Review

keep borrowers in their homes and ensuring that foreclosure prevention 

actions are nondiscriminatory such that actions to not disfavor a specific 

geography, low- or middle-income borrowers, or a protected class.

According to regulators, these principles were to be applied to servicers’ 

broad portfolio of foreclosure prevention activities (not just those 

undertaken as part of the $6 billion obligation under the amended consent 

orders).

Although regulators stated they considered other similar settlements, they 

did not collect or analyze relevant data to inform the amount or structure 

of the foreclosure prevention component of the amended consent orders. 

According to regulators’ supervisory manuals, regulators typically analyze 

information to inform enforcement actions. Despite the absence of 

identified problems and specific objectives to guide the analysis, a variety 

of data were available to regulators that could potentially have informed 

negotiations. In addition, while it is typical for regulators and their 

supervised institutions to negotiate consent orders, regulators stated that 

the negotiations for the amended consent orders did not follow the typical 

enforcement action process. According to OCC staff, the decision to 

significantly amend the consent orders by replacing the foreclosure 

review with a cash payment agreement and a foreclosure prevention 

component was unprecedented. We recognize the atypical nature of the 

negotiations and regulators’ desire to distribute timely payments to 

eligible borrowers. However, we believe some data collection and 

analysis would have been feasible and useful to inform the amount and 

structure of the foreclosure prevention component. Regulators, in 

particular OCC, had access to loan-level data about some servicers’ 

foreclosure prevention actions through the data they collect from 

servicers for the quarterly OCC Mortgage Metrics reports and that 

servicers report to Treasury’s Making Home Affordable program, which 

includes Treasury’s Home Affordable Modification Program (HAMP), that 

they could have used to inform negotiations.66

 

66OCC collects performance data on first-lien residential mortgages serviced by seven 

national banks and one federal savings association with the largest mortgage-servicing 

portfolios for the Mortgage Metrics reports. The mortgages serviced by these institutions 

compose 50 percent of all first-lien residential mortgages outstanding in the United States. 

Treasury’s HAMP provides incentive payments to servicers to provide loan modifications 

that lower borrowers’ monthly payments to affordable levels and help them avoid 

foreclosure.

Other useful data were 

available from servicers. The following are examples of types of analyses 

that could be useful to inform such negotiations.
 

Page 44 GAO-14-376 Foreclosure Review

• Analysis of the value of various types of foreclosure actions 

undertaken by servicers. Analysis of the value of various foreclosure 

actions undertaken by servicers may have provided information for 

regulators to consider in assessing the sufficiency of the negotiated 

amount to provide meaningful relief to borrowers. For example, data 

on servicers’ recent volume of foreclosure prevention actions, 

measured by the unpaid principal balance of loans at the time these 

actions were taken, as well as an average or range of unpaid principal 

balances for various types of actions undertaken by servicers, may 

have provided a basis for gauging the number of borrowers who might 

be helped with various amounts of foreclosure prevention obligations 

under the amended consent orders. Our analysis of HAMP data 

shows that the average unpaid principal balance for loans that 

received a modification through HAMP was approximately $235,000.

As such, in a hypothetical scenario in which a servicer was obligated 

to provide $100 million in foreclosure prevention actions and reached 

the obligation by providing only loan modifications, it could be 

estimated that 425 borrowers would be assisted by the obligation as 

measured by the unpaid principle balance of the loans.67

• Analysis of the volume of servicers’ typical foreclosure prevention 

actions. Analysis of the volume of servicers’ typical foreclosure 

prevention actions might have provided insight into the potential 

impact, if any, of the foreclosure prevention actions and informed the 

feasibility of the negotiated amounts—that is, the extent to which 

servicers could reach the required amounts within the 2-year period 

using their existing programs. Four of the seven servicers we 

interviewed that participated in amended consent orders indicated that 

they anticipated they would be able to meet the required volume of 

activity using their existing foreclosure prevention activities. Of these 

four servicers, two indicated they could achieve the required volume 

of foreclosure prevention actions within the first year, and one servicer 

indicated it would be easy to meet the requirement given that they 

regularly provide much larger amounts of foreclosure prevention 

assistance than their negotiated obligation. One servicer that we did 

not interview reported large volumes of activities using their existing 

programs and policies during the first 6 months of the eligible period.

Specifically, between January and June 2013, the servicer reported 

 

67The amended consent orders provide credit based on the unpaid principal balance of 

the loan.
 

Page 45 GAO-14-376 Foreclosure Review

short sale activities that were approximately 87 percent of the required 

obligation. During this same period, the servicer reported it had also 

undertaken loan modification activities that were valued at about 7 

times more than their total required foreclosure prevention 

obligation.68

• Analysis of alternative crediting approaches. Analysis of the results of 

alternative crediting approaches may have provided insight into the 

sufficiency of the negotiated amount—that is, the extent to which the 

required obligations would reach an appropriate number of borrowers 

as determined by regulators. The amended consent orders provide 

credit based on the unpaid principal balance of the loan. On the basis 

of this methodology, a loan with an unpaid principal balance of 

approximately $235,000, for example, would result in a credit of 

approximately $235,000 toward the servicer’s obligation, regardless of 

the action taken. However, alternative crediting structures exist. For 

example, the National Mortgage Settlement, which includes a similar 

foreclosure prevention component, uses an alternative approach that

generally provides credit based on the amount of the principal 

forgiven or assistance provided. Using this methodology, for a loan 

modification with the same unpaid principal balance of approximately 

$235,000, where the principal forgiven was 29 percent of that balance 

(the average amount of principal forgiveness for first-lien HAMP loan 

modifications), a servicer would receive a credit towards their 

obligation of $68,855.

In contrast, officials from one servicer we interviewed 

stated they opted to make payments to housing counseling agencies 

to fulfill the amended consent order requirement because they 

determined they would not be able to meet the obligation with their 

existing portfolio since the loans in the portfolio were not highly 

delinquent.

69

 

68Although servicers have submitted reports of their activities in response to the required 

foreclosure prevention obligations, as required, according to regulators, they have not yet 

validated that the reported activities are creditable under the terms of the amended 

consent orders. 

Thus, in a hypothetical scenario in which a 

servicer was required to provide $100 million in foreclosure prevention 

actions and met the obligation by using only principle forgiveness, our 

69The National Mortgage Settlement includes a variety of specific guidelines and ranges of 

credit amounts based on certain loan and activity characteristics that a servicer can 

undertake. As such, the actual amount of credit under the National Mortgage Settlement 

structure in this hypothetical scenario would be between about $34,428 and $68,855 in 

credit, depending on the loan-to-value ratio.
 

Page 46 GAO-14-376 Foreclosure Review

analysis estimated 425 borrowers would receive assistance under the 

amended consent orders compared to about 1,452 borrowers under 

the National Mortgage Settlement.70

Further, analysis of the mix of servicers’ typical activities might have 

provided baseline information for regulators to consider in assessing 

whether creating incentives for certain actions by crediting them 

differently might be warranted to help achieve the stated expectation 

of keeping borrowers in their homes.71 According to the amended 

consent orders, the methodology for determining credit for foreclosure 

prevention actions is the same for all actions, regardless of the type of 

action or characteristics of the loan. However, some actions are 

designed to keep borrowers in their homes (loan modifications, for 

example).72

 

70In this hypothetical scenario, we calculated credit under the amended consent orders as 

follows: $100 million obligation ÷ $235,465 in average unpaid principal balance = 425 

loans (borrowers). Similarly, we calculated credit under the National Mortgage Settlement 

as follows: $100 million obligation ÷ $68,855 in average principal forgiven = 1,452 loans 

(borrowers). 

Alternatively, some actions are designed to help avoid 

71In contrast to the amended consent orders, the National Mortgage Settlement provides 

varying amounts of credit depending on the type of action and certain loan characteristics. 

Under the National Mortgage Settlement approach, a loan modification, for example, 

would be credited at a higher ratio than a short sale. Regulators stated they considered 

the National Mortgage Settlement structure in defining the types of creditable activities 

under the amended consent orders and the methodology for determining how the 

activities would be credited towards each servicer’s obligation. Foreclosure prevention 

actions for which servicers can receive credit under the amended consent orders are 

generally the same as the actions for which servicers can receive credit under the 

National Mortgage Settlement. However, OCC staff said they adopted a different crediting 

approach for the amended consent orders because it is more transparent than the 

approach used for the National Mortgage Settlement.

72Loan modification involves making temporary or permanent changes to the terms of the 

existing loan agreement. There are several ways to make these changes, including 

allowing the borrower to skip payments and adding the skipped payments to the amount 

of the loan (capitalizing arrearages), reducing the interest rate charged, extending the loan 

term, and reducing the total amount of the loan (forgiving principal).
 

Page 47 GAO-14-376 Foreclosure Review

foreclosure but borrowers lose their homes (e.g., short sales or 

deeds-in-lieu).73

• Analysis of eligible borrowers still in their homes and in need of 

assistance. Analysis of the number of borrowers eligible for the 

foreclosure review who were still in their homes and in need of 

assistance might have informed the relevance of the method for 

allocating of the negotiated amount. Regulators generally divided the 

$6 billion obligation among servicers based on their share of the 4.4 

million borrowers eligible for the foreclosure review, with servicers 

responsible for amounts that ranged from about $10 million to $1.8 

billion. In addition, in the amended consent orders, regulators directed 

servicers to prioritize these borrowers, even though the foreclosure 

prevention actions were not restricted to borrowers eligible for review.

However, the number of borrowers who were eligible for the 

foreclosure review and might benefit from the foreclosure prevention 

action obligations is potentially limited. Specifically, according to 

information on regulators’ websites covering 13 of the 15 servicers 

that participated in amended consent orders, 41 percent of the 

borrowers who were eligible for the foreclosure review had completed 

foreclosures as of December 31, 2011. Further, according to two 

servicers we interviewed, the number of borrowers who were eligible 

for the reviews and still able to receive foreclosure prevention actions 

was relatively small. For example, one servicer noted that 

approximately 50 percent of these borrowers were no longer being 

serviced by them. They added that of the remaining population, about 

50 percent had already received at least one foreclosure prevention 

action.74

 

73In a short sale, a house is sold through a real estate agent or other means rather than 

through foreclosure, even if the proceeds of the sale are less than what the owner still 

owes on the mortgage. Lenders may agree to accept the proceeds of a short sale and 

may waive any deficiency. Under a deed-in-lieu of foreclosure, the homeowner voluntarily 

conveys the interest in the home to the lender to satisfy a loan that is in default as an 

alternative to foreclosure proceedings. Lenders may opt to accept ownership of the 

property in place of the money owed on the mortgage and may waive any deficiency. 

Deeds-in-lieu will generally not be accepted by a mortgage holder if there are other liens 

on the property, as foreclosure may be necessary for the mortgage holder to gain clear 

title.

As such, many of the borrowers who were eligible for the 

74In general, receiving a loan modification does not prevent a borrower from being 

considered for future modifications or other loss mitigation actions. However, to the extent 

a borrower was current in their payments under the modification action, additional actions 

may not be warranted.
 

Page 48 GAO-14-376 Foreclosure Review

foreclosure review because of a foreclosure action in 2009 and 2010 

might not have been able to benefit from the foreclosure prevention 

actions required under the amended consent orders.

To oversee the foreclosure prevention component of the amended 

consent orders, regulators are considering both servicers’ actions to meet 

the monetary obligations and the foreclosure prevention principles 

included in the amended orders. Regulators collected data from servicers 

and regulators provided guidance to examination teams to facilitate 

oversight activities. OCC and the Federal Reserve established reporting 

requirements to collect information from servicers on the foreclosure 

prevention actions they were submitting for crediting to meet the 

monetary obligations specified in the amended consent orders. To meet 

those obligations, servicers could either provide foreclosure prevention 

actions to borrowers or make cash payments to borrower counseling or 

education or into the cash payment funds used to pay borrowers based 

on categorization results.75 Eight of the servicers opted to meet their 

obligation by providing foreclosure prevention actions, and the remaining 

seven made cash payments.76

To facilitate verification of servicers’ crediting requests for foreclosure 

prevention actions, regulators required servicers to submit periodic 

reports, which all of the servicers have done. Servicers were required to 

submit loan-level information, such as the loan number, foreclosure 

status, and unpaid principal balance before and after the action, on each 

loan the servicers submit for crediting towards their obligation. In addition, 

 

75The cash payments to meet the foreclosure prevention obligation were in addition to the 

cash payments servicers were required to make to eligible borrowers under the borrower 

categorization process. These additional payments were credited to the servicer at $7 or 

$10 towards the financial obligation for each $1 cash commitment. 

76The seven servicers that met their obligation through cash payments service 

approximately 14 percent of the eligible population from the foreclosure review. For the 

four servicers that met their obligation by providing funding to borrower counseling or 

education, they elected to make cash contributions to housing counseling agencies. 

According to the amended consent orders, regulators were to provide a no-objection to 

the agencies selected. According to OCC staff, this assistance was primarily made 

available to nationally recognized housing counseling agencies that provide assistance 

nationwide. One servicer noted that it provided part of its assistance to housing counseling 

agencies that had a presence in areas where the servicer had a concentration of 

borrowers. Federal Reserve staff noted that one of the servicers considered the 

foreclosure prevention principles in selecting the agencies to receive funds. 

Evaluation and Testing of 

Servicers’ Implementation 

of Foreclosure Prevention 

Principles Is Limited
 

Page 49 GAO-14-376 Foreclosure Review

servicers were required to state if the borrower was part of the eligible 

population for the foreclosure review—to respond to the expectation in 

the amended consent orders that, to the extent practicable, servicers 

prioritize eligible borrowers from the foreclosure review. According to 

regulators, they are in the process of hiring a third-party to evaluate the 

servicers’ reported data to validate that the reported actions meet the 

requirements of the amended consent orders and facilitate regulators’ 

crediting approval decisions. Servicers have begun reporting on their 

foreclosure prevention actions, and according to OCC staff, early 

submissions from servicers meeting their obligation through provision of 

foreclosure prevention actions to borrowers suggest they will meet their 

foreclosure prevention requirements quickly. The actions submitted for 

crediting varied, with some servicers primarily submitting short sale 

activities for crediting and others reporting loans that received loan 

modification actions.

The reporting requirements also include information related to the 

principles established in the amended consent orders, although this 

information is not representative of servicers’ complete portfolio of 

foreclosure prevention actions.77

 

77As we noted earlier, the foreclosure prevention principles specify that servicers’ 

foreclosure prevention activities should be designed to keep borrowers in their homes by 

providing affordable, sustainable, and meaningful relief to borrowers and be 

nondiscriminatory such that activities do not disfavor a specific geographic area, low- or 

middle-income borrowers, or a protected class. According to regulators, these principles 

are designed to apply to all of the servicers’ foreclosure prevention actions, not just those 

for which they are seeking crediting under the amended consent orders. 

For example, servicers are required to 

report information on the types of assistance provided, which provides 

information on the extent to which the actions servicers are reporting for 

crediting are helping borrowers keep their homes—such as by providing a 

loan modification as compared to a short sale, in which a borrower would 

still lose his or her home. According to servicers we spoke with, the 

information they are reporting to regulators on their foreclosure prevention 

activities for crediting is not representative of their full portfolio of 

foreclosure prevention activities and would not provide information on 

how well their overall program is meeting the principles established for 

the assistance. For example, some servicers are submitting loans for 

crediting review that focus primarily on certain segments of their servicing 

population, such as only proprietary (in-house) loans. Another servicer 

had submitted all of its loss mitigation activities that may qualify for 

crediting according to the definitions in the amended consent orders, but 
 

Page 50 GAO-14-376 Foreclosure Review

this still does not represent all of their activities. Overall, the reporting 

requirements associated with the foreclosure prevention actions in the 

amended consent orders provide information to assess crediting but not 

to evaluate servicers’ application of the foreclosure prevention principles 

to their broader portfolio of loans.

Regulators also issued guidance to examination teams for oversight of 

the foreclosure prevention principles. The guidance identifies procedures 

examination teams were expected to take to oversee a servicer’s 

application of the foreclosure prevention principles to their broad portfolio 

of foreclosure prevention actions. Those procedures included steps 

related to each of the key elements in the principles. However, the 

guidance does not identify actions examination teams should take to 

evaluate or test servicers’ application or implementation of the steps.78

For example, the guidance requires examination teams to describe the

policies and monitoring controls servicers have in place to help ensure 

that their foreclosure prevention activities are nondiscriminatory, but does 

not set an expectation that teams will evaluate how well servicers are 

applying those policies and controls to their mortgage servicing practices. 

Similarly, the guidance requires examination teams to identify the 

performance measures servicers use to assess the principle related to 

the sustainability of foreclosure prevention actions, but the guidance does 

not require examination teams to evaluate how well a servicer’s programs 

are providing sustainable actions.79

 

78The guidelines also require examination teams to collect information that is not directly 

applicable to oversight of the foreclosure prevention principles. Specifically, information on

the quality of the servicer’s portfolio and the servicer’s foreclosure prevention programs, 

including delinquency trend data, the types of foreclosure prevention programs used by 

the servicer, the servicer’s controls for transfer of servicing rights, and information on the 

cost of foreclosure prevention actions as compared to the cost of foreclosure. For two of 

these areas—delinquency trend data and transfer of servicing rights—examination teams 

are expected to evaluate a servicer’s actions, but these two areas are not specific to the 

foreclosure prevention principles.

Finally, to assess whether servicers’ 

foreclosure prevention actions are meaningful—one of the principles—

examination teams are to collect data on the servicers’ foreclosure 

prevention actions, including the extent to which those actions resulted in 

higher or lower monthly payments, but the guidance does not require 

79The guidance identifies examples of such measures, including the number of modified 

loans less than 30 days delinquent or paid in full 6 and 12 months following modification 

compared to the total number of modified loans for the same period.
 

Page 51 GAO-14-376 Foreclosure Review

examination teams to evaluate the data to understand what it indicates 

about servicers’ actions.

In contrast, other sections of the same guidance provided to examination 

teams for oversight of the other articles of the consent orders specify 

regulators’ expectations that examination teams will evaluate and test 

certain policies, monitoring controls, and data. For example, OCC’s 

guidance to oversee compliance—which is intended to assess whether

servicers’ mortgage practices comply with all applicable legal 

requirements and supervisory guidance—identifies specific areas where 

examination teams should test policies and controls as well as 

performance measures. For instance, examination teams are expected to 

evaluate the servicer’s performance measures to determine the servicer’s

ability to complete timely foreclosure processing, to identify and evaluate 

controls for preventing improper charging of late fees, and to evaluate the 

servicer’s staff model for certain criteria. Similarly, the Federal Reserve’s 

guidance specifies testing procedures for most elements of the original 

consent orders, such as third-party management, servicer’s compliance 

program, and risk management. For instance, to ensure that documents 

filed in foreclosure-related proceedings are appropriately executed and 

notarized—one of the requirements in the original consent orders—the 

guidance states that examination teams should review servicers’ policies, 

procedures, and controls to ensure that the documents are handled 

appropriately and then test a sample of documents to verify that 

notarization occurred according to the applicable requirements.

According to regulators’ supervisory manuals, effective supervision 

requires defining examination activities, including determining clear 

objectives and describing the specific procedures to evaluate and test 

that policies and procedures are implemented.80

 

80See OCC, Bank Supervision Process: Comptroller’s Handbook (Washington, D.C.: May 

2013) and Board of Governors of the Federal Reserve System, Division of Banking 

Supervision and Regulation: Bank Holding Company Supervision Manual (Washington, 

D.C.: July 2013).

In addition, federal 

internal control standards require individuals responsible for reviewing 

management controls—such as servicers’ policies and procedures for the 

foreclosure prevention principles—to assess whether the appropriate 

policies and procedures are in place, whether those policies and 
 

Page 52 GAO-14-376 Foreclosure Review

procedures are sufficient to address the issue, and the extent to which the 

policies and procedures are operating effectively.81

Some examination teams are close to completing the oversight 

procedures related to the foreclosure prevention principles, but others 

have not begun, and the extent to which regulators plan to evaluate or 

test information collected is unclear. According to OCC staff, examination 

teams completed their initial oversight of these principles in December 

2013, as part of their other consent order validation activities. OCC staff 

told us they are reviewing the results of each of the examination teams’ 

procedures and may identify the need for additional activity. OCC staff 

stated they also plan to conduct an additional review of each servicer’s 

foreclosure prevention actions, which will include consideration of the 

principles in the amended consent orders, but they do not have specific 

procedures to evaluate or test servicers’ implementation of those 

principles. According to Federal Reserve staff, most Federal Reserve 

examination teams have not yet conducted their oversight activities 

related to the foreclosure prevention principles. Federal Reserve staff told 

us that examination teams generally are conducting these reviews during 

the second quarter of 2014 and that the Federal Reserve would consider 

conducting additional follow-up activities related to the principles. 

According to federal internal control standards, management control 

activities should provide reasonable assurance that actions are being 

taken to meet requirements, such as the requirements related to the 

foreclosure prevention principles.82

Without specific procedures for examination teams to use in testing or

evaluating the application of the foreclosure prevention principles, OCC 

and the Federal Reserve may not be able to determine the extent to 

which servicers are incorporating the foreclosure prevention principles 

into their foreclosure prevention practices. In the absence of evaluation or 

testing of policies and controls related to the principles, examination 

teams may have difficulty determining whether servicers’ policies and 

As the Federal Reserve has generally 

not yet completed their oversight activities for the foreclosure prevention 

principles, the extent to which this oversight will incorporate additional 

evaluation or testing of servicer’s implementation of the principles is 

unclear.

 

81See GAO/AIMD-00-21.3.1.

82See GAO/AIMD-00-21.3.1.
 

Page 53 GAO-14-376 Foreclosure Review

procedures are effective—an assessment OCC examination teams are 

required to make—or assessing how well the principles guide servicer 

behavior. For example, although servicers may have policies that 

explicitly forbid disfavoring low- or moderate-income borrowers during 

foreclosure prevention actions, without reviewing data, such as a sample 

of transactions from various programs, it is difficult to determine whether 

the policy is functioning as intended. Without these procedures, 

regulators may miss opportunities to determine how well servicers’ 

foreclosure prevention actions provide meaningful relief and help 

borrowers retain their homes.

According to regulators we spoke with, the initial review of borrowers’ 

2009 and 2010 foreclosure-related files and cash payment categorization 

process confirmed past servicing weaknesses—such as documentation 

weaknesses that led to errors in foreclosure processing—that they 

suspected or discovered through the 2010 coordinated review that was 

done in advance of the original consent orders. Regulators have taken 

steps to share these findings across examination teams. Continued 

supervision of servicers and information sharing about the experiences 

and challenges encountered help ensure that these weaknesses are 

being corrected. Recent changes to regulators’ requirements for 

mortgage servicing also help to address some of the issues.

Although consultants generally did not complete the review of 2009 and 

2010 foreclosure-related files through the file review process, consultants, 

servicers, and regulators were able to describe some of the servicing 

weaknesses they identified based on the work that was completed. 

According to OCC staff, these preliminary findings from consultants’ 

review of 2009 and 2010 foreclosure-related files were consistent with 

issues discovered through the earlier coordinated review of foreclosure 

policies and practices conducted by examination teams in 2010 that led to 

the consent orders.83

 

83For more information on the results of the coordinated review see: Federal Reserve, 

OCC, the Office of Thrift Supervision, Interagency Review of Foreclosure Policies and 

Practices (Washington, D.C.: Apr. 2011).

As we noted previously, the file reviews were 

retrospective assessments and were designed to identify and remediate 

the harms suffered by borrowers due to 2009 and 2010 servicing 

Regulators Are 

Sharing Findings of 

Servicing 

Weaknesses 

Confirmed through 

File Reviews and 

Cash Payment 

Process

File Review and Cash 

Payment Activities 

Confirmed Previously 

Identified Servicing 

Weaknesses
 

Page 54 GAO-14-376 Foreclosure Review

practices.84

• Failure to halt foreclosures during bankruptcy. The report from the 

regulators’ 2010 coordinated review noted that servicers’ quality 

controls were not adequate to ensure that foreclosures were halted 

during bankruptcy proceedings. These concerns were validated 

during the subsequent review of 2009 and 2010 foreclosure files 

during which consultants found some instances of foreclosures taking 

place after borrowers had filed for bankruptcy. 

To collect information on what was learned about servicers’ 

practices from these file reviews, regulators asked consultants to 

complete an exit questionnaire and held exit interviews with each 

consultant to discuss the file review process and preliminary observations 

and findings. In addition, while consultants did not prepare final reports 

with their findings, regulators we spoke with said they had shared some 

preliminary findings with examination teams through weekly updates as 

the file reviews progressed. Examples of weaknesses identified during 

the coordinated review and confirmed during the review of files from the 

same period, included the following:

• Failure to halt foreclosures during loss mitigation procedures. The 

report from the 2010 coordinated review also expressed concern that 

servicers’ quality control processes did not ensure that foreclosures 

were stopped during loss mitigation procedures, such as loan 

modifications. During the subsequent file reviews, one consultant 

found that in some cases, a servicer had foreclosed on borrowers who 

were in the midst of applying for loan modifications. In addition, the file 

reviews identified some borrowers who were wrongfully denied loan 

modifications, did not receive loan modification decisions in a timely 

manner, or were not solicited for HAMP modifications in accordance 

with HAMP guidelines.85

• Failure to apply SCRA protections. The coordinated review report also 

noted that a lack of proper controls could have affected servicers’ 

determinations of the applicability of SCRA protections. Some 

 

84In addition to conducting file reviews to identify potentially harmed borrowers, the 

original consent orders required servicers to make changes to their mortgage servicing 

activities for which regulators are providing ongoing oversight and monitoring.

85HAMP guidelines provide a consolidated resource of programmatic guidance related to 

HAMP. For example, the guidelines include information on HAMP eligibility criteria, 

requirements for the solicitation of borrowers potentially eligible for HAMP, and a 

description of the circumstances under which a servicer could refer a loan to foreclosure.
 

Page 55 GAO-14-376 Foreclosure Review

consultants identified issues such as servicers failing to verify a 

person’s military status prior to starting foreclosure proceedings and 

failing to consistently perform data checks to determine military 

status.86

• Failure to maintain sufficient documentation of ownership. Although 

the 2010 coordinated reviews found that servicers generally had 

sufficient documentation authority to foreclose, examiners noted 

instances where documentation in the foreclosure file may not have 

been sufficient to prove ownership of the mortgage note. Likewise, 

during the subsequent consent order file reviews, some consultants 

found cases of insufficient documentation to demonstrate ownership.

• Weaknesses related to oversight of external vendors and 

documentation of borrower fees. The coordinated file review report 

noted weaknesses in servicers’ oversight of third-party vendors, and 

OCC staff stated that the subsequent file review found errors related 

to fees charged to borrowers, many of which occurred when servicers 

relied on external parties. Staff explained that servicers often did not 

have controls in place to ensure that services were performed as 

billed and that the fees charged to customers were reasonable and 

customary.

In addition, the process of categorizing borrowers for cash payments—

which relied on servicers’ data about those borrowers from 2009 and 

2010—found issues that were consistent with weaknesses identified 

during the 2010 coordinated reviews, particularly in servicers’ data 

systems. For example, one examination team noted that a servicer’s data 

weaknesses related to servicemembers and others became more 

apparent during the cash payment categorization process. In addition, as 

noted earlier, at least 5 of the 13 servicers were unable to categorize 

some borrowers according to the framework criteria because of system 

limitations. Federal Reserve staff noted that problems with one servicer’s 

data related to loan modifications led the servicer to place everyone in the 

highest category possible rather than rely on the system. Further, another 

examination team told us that while reviewing the categorization of 

borrowers for cash payments, the servicer’s internal audit department 

found a high rate of borrowers incorrectly categorized in the loan 

 

86For more information on provision of SCRA mortgage protections in general, see GAO, 

Servicemembers Civil Relief Act: Information on Mortgage Protections and Related 

Education Efforts, GAO-14-221 (Washington, D.C.: Jan. 28, 2014).
 

Page 56 GAO-14-376 Foreclosure Review

modification categories due to weaknesses in the quality of the servicer’s 

data. The examination team explained that after reviewing the servicer’s 

initial categorization, regulators determined that the servicer did not have 

sufficiently reliable system data to categorize borrowers in the lowest 

categories, and therefore those borrowers were categorized in a higher 

category.

After terminating the reviews of 2009 and 2010 foreclosure-related files, 

regulators instructed examination teams to identify deficiencies and 

monitor servicers’ actions to correct them. For example, OCC required 

examination teams to complete conclusion memorandums on deficiencies 

consultants identified. The conclusion memorandums were to include 

information on the deficiencies consultants identified in the servicer’s 

policies, procedures, practices, data, systems, or reporting. The guidance 

for the memorandums also asks examination teams to discuss steps 

servicers took to correct these deficiencies. In one conclusion 

memorandum, the examination team noted that the servicer was in the 

process of addressing issues, such as technological impediments to 

efficient and accurate servicing and the accurate identification of 

borrowers eligible for SCRA protections and borrowers in bankruptcy, but 

that not all issues had yet been addressed. According to Federal Reserve 

staff, they are not planning to do a broad analysis of the results from the 

file reviews, but they have asked the examination teams to consider 

issues that emerged from them and whether additional corrective action is 

needed. OCC and Federal Reserve staff also told us that examination 

teams are continuing their oversight activities to determine whether 

servicers are addressing all aspects of the consent order, which includes 

the areas highlighted by the preliminary file reviews. OCC staff said that 

the examination work is intended to determine what issues have been 

addressed and what issues continue to exist.

Some examination teams told us that they are leveraging the results of 

the reviews and the cash payment categorization process by following up 

on some of the issues identified for the servicers they oversee in their 

future oversight. For example, one team said that it was following up on 

findings related to bankruptcy, fees, notices of loan modifications, and 

income calculations associated with loan modification applications. In 

particular, they noted that they have done subsequent testing related to 

borrowers in bankruptcy and will continue to assess the servicer’s efforts 

in this area. Another team stated that in light of challenges with an aspect 

of the cash payment categorization process, they identified weaknesses 

with the servicer’s staffing, project management, and problem resolution 

OCC and the Federal 

Reserve Are Taking Steps 

to Leverage and Share 

Results to Inform Future 

Supervision
 

Page 57 GAO-14-376 Foreclosure Review

processes. To try to prevent repetition of these mistakes, the examination 

team required the servicer to identify and implement changes to their 

mortgage servicing practices.

However, some examination teams said that little additional information 

was learned from the file review or cash payment activities that they could 

leverage in future oversight. For example, one examination team noted 

that because few files had gone through complete reviews, they could not 

determine how widespread the problems found were. They said that 

because the file reviews were terminated before the reviews were 

completed, they did not have sufficient information to interpret the initial 

findings. Another examination team told us that no new information was 

learned from the file reviews and all of the issues raised during them were 

known issues. A third examination team told us that they would 

incorporate some aspects of the consultant’s processes into their review 

process, but the reviews were not far enough along to draw conclusions 

about any additional substantive weaknesses with the servicer’s 

practices. In addition, Federal Reserve staff noted that because the file 

reviews were terminated before many data points were collected, what 

could be learned from them is limited. Similarly, one examination team 

noted that while weaknesses were identified with the servicer’s operations 

during both the file review and cash payment processes, they were 

specific to systems and activities from 2009 and 2010 that were no longer 

in place or operational. Additionally, OCC staff explained that because the 

files that were reviewed were from 2009 and 2010, the findings may no 

longer be applicable, particularly given changes in servicing operations 

since that time.

Because examination teams learned different information from their 

oversight of the file review and cash payment processes, sharing each 

others’ experiences could be instructive for ongoing oversight of 

mortgage servicing. As we noted earlier, the completion rates for the file 

review process varied from no files with a completed review to 57 percent 

of the planned files reviewed. In addition, the areas that were reviewed 

varied among servicers. For example, several of the consultants reported 

completing at least initial reviews of the majority of files in the bankruptcy 

category. Another consultant stated that the only category of review 

completed was the SCRA category, and therefore, it only had findings 

related to the retention of SCRA data. A third consultant had completed 

its review of a majority of the initial files planned for review, and had found 

several different types of errors, including errors with fees charged, loan 

modification decisions, and documentation of ownership. Although, as 

regulators have noted, each servicer has unique operations and data 
 

Page 58 GAO-14-376 Foreclosure Review

systems, servicing standards and other requirements defined by 

regulators are generally broadly applied and insight from one servicer’s 

approach to meet these standards—or problems meeting these 

standards—can be instructive for another examination team responsible 

for overseeing these same standards.

According to our analysis of examination teams’ conclusion 

memorandums, some servicers encountered similar challenges in the 

cash payment process. In contrast to the file review process, the borrower 

categorization process was completed for 14 of the servicers and 

servicers had to place borrowers into the same categories. Several 

examination teams and a servicer noted that merging data from multiple 

servicing systems posed particular challenges for completing the 

borrower categorization process. Other examination teams we spoke with 

described challenges servicers encountered with their data systems to 

record information on bankruptcy and other foreclosure-related actions. 

Understanding what caused similar types of challenges and their 

prevalence among servicers may help regulators identify future areas for 

oversight activities.

According to regulators, they have taken steps to share information 

among examination teams about issues encountered during the file 

review and cash payment process and OCC planned to take additional 

steps. For example, regulators told us that during the file review and cash 

payment categorization process, OCC and Federal Reserve examination 

teams held weekly phone meetings. According to several examination 

teams we spoke with, during these meetings they would highlight 

challenges they were encountering, such as issues related to missing 

data in a servicer’s systems. In addition, Federal Reserve staff stated that 

Federal Reserve examination teams met during the cash payment 

categorization process to share information on their approach to the 

activities and discuss approaches different teams were taking to address 

challenges. To further facilitate information sharing among examination 

teams, Federal Reserve staff told us that examination teams posted to a 

shared website their conclusion memorandums for the cash payment 

activities, which included information on the approach servicers used to 

categorize borrowers. According to OCC staff, they are also writing a 

consolidated conclusion memorandum that will summarize examination 

teams’ findings from the foreclosure review process, including information 

on specific challenges identified at individual institutions that may be 

instructive for other examination teams. 
 

Page 59 GAO-14-376 Foreclosure Review

According to regulators, examination teams also have offered to share 

information with CFPB about issues encountered during the file review 

process. Banking regulators and CFPB have entered into a Memorandum 

of Understanding, which states that CFPB and the regulators will 

endeavor to inform each other of issues that may impact the supervisory 

interests of the other agencies. According to regulators we spoke with, 

there has been limited sharing of findings from the foreclosure review 

process with CFPB. According to OCC staff, in some cases, they have 

shared information with CFPB about servicers’ compliance with the 

original consent orders and, in other instances, they offered to provide 

CFPB information on the file review process, but CFPB had not requested 

follow-up information. Federal Reserve staff said two of its examination 

teams have provided information to CFPB on the Federal Reserve’s 

monitoring activities related to the original consent orders, including the 

file reviews, and amended consent orders.

Recent servicing requirements, some of which apply to a broader group 

of mortgage servicers than those included in the file review process, may 

also address some of the weaknesses found during the 2010 coordinated 

review and confirmed during the review of foreclosure-related files from 

2009 and 2010 and the borrower categorization process. Since the 2009 

and 2010 period of the file reviews, regulators have issued several 

guidelines and standards related to mortgage servicing:

• April 2011 Consent Orders. In addition to the requirement to conduct 

file reviews of borrowers who were in foreclosure or had completed 

foreclosure any time in 2009 or 2010, the original consent orders 

issued by OCC and the Federal Reserve to 16 servicers also included 

other requirements, such as submitting a plan for improving the 

operation of servicers’ management information systems for 

foreclosure and loss mitigation activities.87

• National Mortgage Settlement. Five servicers are covered by the 

National Mortgage Settlement, which includes requirements such as 

preforeclosure notices to borrowers, procedures to ensure the 

Regulators’ examination 

teams will continue to monitor these requirements and ensure that the 

aspects of the consent orders that apply are met.

 

87As we have noted previously, two of the original consent orders were issued after April 

2011, in September 2011 and April 2012.

Recent Servicing 

Requirements May 

Address Identified 

Weaknesses
 

Page 60 GAO-14-376 Foreclosure Review

accuracy of borrower accounts, and quarterly reviews of foreclosure 

documents.

• CFPB Mortgage Servicing Rules. These rules were issued in January 

2013, became effective January 10, 2014, and apply to all servicers, 

with some exemptions for small servicers.88

• OCC and Federal Reserve Imminent Foreclosure Standards. In April 

2013, OCC and the Federal Reserve issued checklists to the 

servicers they supervise to establish minimum standards for handling 

and prioritizing of borrower files that are subject to imminent 

foreclosure sales.

The rules cover several 

major topics that address many aspects of mortgage servicing, 

including specific requirements related to communication with 

delinquent borrowers and loss mitigation procedures.

89

These requirements address issues identified during the file reviews and 

cash payment process. For example, to address issues related to 

borrowers being foreclosed upon while in the process of a loan 

modification application, OCC and Federal Reserve’s Minimum Standards 

for Prioritization and Handling of Borrower Files Subject to Imminent 

Foreclosure Sales require servicers to take steps to verify a borrower’s 

status once a foreclosure date has been established. Specifically, 

servicers must promptly (1) determine whether the borrower has 

requested consideration for, is being considered for, or is currently in an 

active loss mitigation program; and (2) determine whether the foreclosure 

activities should be postponed, suspended, or cancelled. As another 

example, to address issues related to communicating loan modification 

decisions to borrowers, CFPB’s rules state that servicers must provide 

the borrower with a written decision, including an explanation of the 

For example, both sets of standards require that 

once the date of foreclosure is established, the servicer must confirm 

that the loan’s default status is accurate.

 

88Servicers that qualify as small servicers are exempt from certain parts of the Mortgage 

Servicing Rules. CFBP defines small servicers as: (1) institutions, including any affiliates, 

that service 5,000 or fewer mortgage loans and are the creditor or assignee for all of them 

or (2) housing finance agencies.

89These standards are also included in an updated version of the comptroller’s handbook 

on mortgage banking. The handbook also includes wholesale changes to the discussion 

of mortgage servicing to incorporate recent lessons learned and regulatory changes. See 

OCC, Comptroller’s Handbook: Mortgage Banking (Washington, D.C., Feb. 2014).
 

Page 61 GAO-14-376 Foreclosure Review

reasons for denying the loan modification, on an application submitted 

within the required time frame.90

The guidelines also address issues related to servicers’ data systems. 

For example, CFPB’s rules require that servicers are able to compile a 

complete servicing file in 5 days or less. CFPB officials noted that this 

requirement was specifically included to address weaknesses in 

servicers’ data systems that might still exist. In addition, as previously 

noted, the OCC and Federal Reserve consent orders required servicers 

to submit a plan for the operation of their management information 

systems. The plan needed to include a description of any changes to 

monitor compliance with legal requirements; ensure the accuracy of 

documentation of ownership, fees, and outstanding balances; and ensure 

that loss mitigation, foreclosure, and modification staff have sufficient and 

timely access to information.

Regulators took steps to promote transparency through efforts to keep 

borrowers and the general public informed about the status and progress 

of amended consent order and continuing review activities and through 

posting information publicly on their websites. Regulators also plan to 

issue public final reports on the cash payment process and foreclosure 

prevention actions as well as the results of the one file review that 

continued. These actions, however, have included limited information on 

processes, such as specific information about the category in which 

borrowers were placed or how those determinations were made.

In our March 2013 report, we found that transparency on how files were 

reviewed under the foreclosure review was generally lacking and that 

borrowers and the general public received limited information about the 

progress of reviews.91

 

9012. C.F.R. § 1024.41. For a complete loss mitigation application received more than 37 

days before a foreclosure sale, the servicer is required to evaluate the borrower, within 30 

days, for all loss mitigation options for which the borrower may be eligible in accordance 

with the investor’s eligibility rules. 12 C.F.R. § 1024.41 (c)(1).

We recommended that regulators develop and 

implement a communication strategy to regularly inform borrowers and 

91See GAO-13-277. 

Regulators 

Communicated the 

Status of Activities, 

but Information on 

Processes Has Been 

Limited

Regulators Promoted 

Transparency about the 

Status and Results of 

Cash Payments and Plan 

to Issue Public Reports
 

Page 62 GAO-14-376 Foreclosure Review

the public about the processes, status, and results of the activities under 

the amended consent orders and continuing foreclosure reviews.

Since the announcement of the amended consent orders and our March 

2013 report, regulators have taken steps to keep borrowers and the 

general public informed about the status of activities under the amended 

consent orders and continuing foreclosure reviews. For example, 

regulators directed that the payment administrator for 14 of the 15 

servicers subject to amended consent orders send postcards to 

approximately 4.4 million borrowers informing them that they would 

receive a cash payment from their servicer.92 In addition, regulators 

directed the administrator to send communications to borrowers subject 

to the continuing file review to inform them that their reviews were 

ongoing. OCC staff noted that they anticipated requiring a final 

communication to borrowers when the review is completed. Regulators 

also kept the general public informed about the status of activities. For 

example, regulators conducted two webinars to provide details on the 

amended consent order activities and published answers to frequently 

asked questions on their websites. Regulators also used mass media 

such as press releases and public service announcements to 

communicate the status of activities. In addition, regulators updated their 

websites with information on the number and amount of checks issued 

and cashed under the amended consent orders, and in May 2013, 

regulators reported this information by state. Finally, regulators also made 

the cash payment frameworks and borrower categorization results 

publicly available on their websites.93

 

92As of December 2013, borrowers serviced by EverBank had not received information on 

the amended consent orders. OCC staff stated that, depending on the timing of the check 

distribution, they were considering communications similar to those sent to borrowers for 

the other servicers that signed amended orders informing them about the amended 

consent orders and when they would receive a payment.

The frameworks list the payment 

categories and amounts and also include the overall results of the cash 

payment process by including the number of borrowers in each payment 

category.

93The three frameworks and corresponding borrower categorization results (titled 

“Payment Agreement Details”) covering 14 of the 15 servicers subject to the amended 

consent orders were made available on OCC’s and the Federal Reserve’s websites. See 

http://www.occ.gov/topics/consumer-protection/foreclosure-prevention/correctingforeclosure-practices.html and http://www.federalreserve.gov/consumerinfo/independentforeclosure-review.htm, accessed March 12, 2014. 
 

Page 63 GAO-14-376 Foreclosure Review

Regulators plan to issue publicly final reports on the direct payment 

process and foreclosure prevention actions as well as information from 

the reviews that were terminated and the results of the review that 

continued. We noted the importance of public reporting to enhancing 

transparency in our March 2013 report. At that time, regulators planned to 

release reports on the foreclosure review and cash payment process, but 

the content of the reports had not been determined. Since our report, 

regulators have taken additional steps toward making reporting decisions.

However, they are still considering the content and timing of these 

reports. Federal Reserve staff stated that they have worked with OCC to 

reach out to community groups to get their input on the information to 

include in public reports, and they are reviewing the types of information 

on foreclosure prevention actions reported for the National Mortgage 

Settlement and HAMP. Federal Reserve staff also stated that they 

anticipate the final report would include information on the terminated 

reviews. OCC staff said they are conducting examinations to assess the 

extent to which servicers addressed all aspects of the consent orders, 

including weaknesses highlighted by the preliminary file reviews, and they 

anticipate reporting on conclusions of the foreclosure reviews, including 

the reviews that were terminated. OCC staff stated they are waiting on 

the results of the continuing review and reports on servicers’ foreclosure 

prevention actions before making final reporting decisions.

Although regulators have taken steps to promote transparency, these 

actions included limited information on the data regulators considered in 

negotiating the cash payment obligations and the processes for 

determining cash payment amounts. Our March 2013 recommendation to 

implement a communication strategy included not only keeping borrowers 

informed about the status and results of amended consent order and 

continuing review activities, but it also included keeping borrowers and 

the public informed about processes to determine those results. In our 

March 2013 report, we found that more publicly disclosed information 

about processes could have increased transparency and thereby public 

confidence in the reviews, given that one of the goals regulators 

articulated for the foreclosure review was to restore public confidence in 

the mortgage market. Federal internal control standards state the 

importance of relevant, reliable, and timely communications within an 

organization as well as with external stakeholders.94

 

94See 

In addition, our prior 

GAO/AIMD-00-21.3.1. 

Additional Information on 

Cash Payment Processes 

May Enhance 

Transparency
 

Page 64 GAO-14-376 Foreclosure Review

work on organizational transformation suggests that policymakers and 

stakeholders demand transparency in the public sector, where 

stakeholders are concerned not only with what results are to be achieved, 

but also with which processes are to be used to achieve those results.95

Regulators released limited information on the process used to determine 

cash payment amounts. Regulators’ joint press release announcing the 

payment agreement stated that the amounts of borrowers’ payments 

depended on the type of possible servicer error, and regulators’ websites 

and webinars provided information on the roles of regulators, servicers, 

and the payment administrator. However, regulators did not release 

publicly information on the criteria for borrower placement in each 

category, such as the specific loan and borrower characteristics 

associated with each category. In addition, information about the process 

for determining cash payment amounts for each category was not 

communicated to individual borrowers. Borrowers subject to the amended 

consent orders received postcards informing them they would receive a 

cash payment. The postcards, however, did not include information about 

the process by which their payment amounts would be determined. 

Moreover, the letter accompanying the cash payment does not include 

information about the category in which a borrower was placed.

Consumer groups we interviewed maintained that borrowers should have 

been given information about the category into which they were placed 

and an explanation of how they were categorized.

Regulators said that borrowers could obtain additional information from 

other sources. Federal Reserve staff explained that the letter to borrowers 

does not include information on the borrower’s cash payment category, 

but they said that a borrower may be able to figure out this information 

using the publicly issued cash payment framework, which includes cash 

 

95See GAO, Major Management Challenges and Program Risks: Department of 

Homeland Security, GAO-03-102 (Washington, D.C.: Jan. 2003) and Results-Oriented 

Cultures: Implementation Steps to Assist Mergers and Organizational Transformations, 

GAO-03-669 (Washington, D.C.: July 2, 2003). Part of the methodology to develop these 

reports included convening a forum of public and private-sector leaders to discuss useful 

practices from major private and public-sector organizational mergers, acquisitions, and 

transformations that federal agencies could learn from when making changes, such as 

those in response to governance challenges. The participants of the forum identified key 

practices and lessons learned regarding mergers and transformations. We considered this 

example relevant to the foreclosure review because of the significant nature of the change 

from the foreclosure review to the activities under the amended consent orders for 

distributing direct payments and other assistance. 
 

Page 65 GAO-14-376 Foreclosure Review

payment amounts for each category. Regulators also told us that 

borrowers could call the payment administrator with questions or 

complaints related to the cash payment process under the amended 

consent orders. However, according to the payment administrator’s 

protocol, staff were instructed to provide general information on the cash 

payment process, but did not have specific information about the category 

in which borrowers were placed or how those determinations were made.

Federal Reserve staff stated that borrowers who have complaints about 

their servicer could also write to their servicer’s regulator directly, but 

consumer groups said that very few borrowers would file a formal 

complaint with the regulators because they never received an explanation 

of what category they were placed in and regulators did not establish an 

appeals process. Further, letters sent to borrowers stated that the 

payments were final and there was no appeals process. Regulators told 

us they did not establish an appeals process because borrowers did not 

waive their rights to take legal action by accepting the payment. Federal 

Reserve staff stated that although there was not a process for borrowers 

to appeal their payments, borrowers who are not satisfied with the 

payment amounts can pursue any legal claims they may have.

With additional information on processes, regulators have opportunities to 

enhance transparency and public confidence with the amended consent 

order activities. The majority of cash payments have been deposited. As 

such, regulators have missed key opportunities to provide information that 

would have enhanced transparency of the cash payment process for 

individual borrowers. Further, since borrowers cannot obtain further 

information by formally appealing the results of the direct payment 

process, the lack of information about the criteria for placement in the 

various categories may hinder public confidence in the process. The final 

reports that regulators plan to issue represent an important opportunity to 

provide additional information on processes to clarify for borrowers and 

the general public how payment decisions were made.

The amended consent order process—with the distribution of cash 

payments to 4.4 million borrowers and requirements that servicers 

provide $6 billion in foreclosure prevention actions—terminated the 

review of 2009 and 2010 foreclosure-related files for 15 servicers prior to 

completion. This process addressed some of the challenges identified by 

regulators with the file review process—for example, it provided cash 

payments to borrowers more quickly than might have occurred had the 

file reviews continued. In addition, through the foreclosure prevention 

component of the amended orders, regulators were able to convey their 

Conclusions
 

Page 66 GAO-14-376 Foreclosure Review

commitment to specific principles to guide loss mitigation actions—

including that servicers’ foreclosure prevention activities provide 

meaningful relief to borrowers and not disadvantage a specific group. 

While views varied on the usefulness of the file review process, regulators 

are taking steps to use what was learned to inform future supervisory 

activities.

While regulators used the amended consent orders to establish principles 

for foreclosure prevention activities, they did not require examination 

teams to evaluate or test servicers’ activities related to these principles. In 

particular, they did not require evaluation or testing of servicers’ policies, 

monitoring controls, and performance measures, to determine the extent 

to which servicers are implementing these principles to provide 

meaningful relief to borrowers. In contrast, other parts of the guidance 

provided to examination teams for oversight of the consent orders do 

require evaluation and testing, and the requirements in regulators’ 

supervisory manuals and federal internal control standards also include 

such requirements. For OCC examination teams, which have completed 

reviews of servicers’ activities related to the foreclosure prevention 

principles, additional planned supervisory activities, such as a review of 

servicers’ foreclosure prevention actions, may help identify concerns with 

servicers’ implementation of aspects of the foreclosure prevention 

principles. However, the specific procedures to conduct these additional 

planned activities have not been established. In comparison, for Federal 

Reserve examination teams that have not yet completed the reviews, 

there is an opportunity to implement a more robust oversight process that 

includes evaluation and testing, but the extent to which the Federal 

Reserve will take these steps is unclear. In the absence of specific 

expectations for evaluating and testing servicers’ actions to meet the 

foreclosure prevention principles, regulators risk not having enough 

information to determine whether servicers are implementing the 

principles and protecting borrowers.

Finally, although regulators communicated information about the status 

and results of the cash payment component of the amended consent 

orders, they missed opportunities to communicate additional information 

to borrowers and the public about key amended consent order processes. 

One of the goals that motivated the original file review process was a 

desire to restore public confidence in the mortgage market. In addition, 

federal internal control standards and our prior work highlight the 

importance of providing relevant, reliable, and timely communications, 

including providing information about the processes used to realize 

results, to increase the transparency of activities to stakeholders—in this 
 

Page 67 GAO-14-376 Foreclosure Review

case, borrowers and the public. Without making information about the 

processes used to categorize borrowers available to the public, such as 

through forthcoming public reports, regulators may miss a final 

opportunity to address questions and concerns about the categorization 

process and increase confidence in the results.

We are making the following three recommendations:

1. To help ensure that foreclosure prevention principles are being 

incorporated into servicers’ practices, we recommend that the 

Comptroller of the Currency direct examination teams to take 

additional steps to evaluate and test servicers’ implementation of the 

foreclosure prevention principles.

2. To help ensure that foreclosure prevention principles are being 

incorporated into servicers’ practices, we recommend that the 

Chairman of the Board of Governors of the Federal Reserve System 

ensure that the planned activities to oversee the foreclosure 

prevention principles include evaluation and testing of servicers’ 

implementation of the principles.

3. To better ensure transparency and public confidence in the amended 

consent order processes and results, we recommend that the 

Comptroller of the Currency and the Chairman of the Board of 

Governors of the Federal Reserve System include in their forthcoming 

reports or other public documents information on the processes used 

to determine cash payment amounts, such as the criteria servicers 

use to place borrowers in various payment categories.

We provided a draft of this report to OCC, the Federal Reserve, and 

CFPB for comment. We received written comments from OCC and the 

Federal Reserve; these are presented in appendixes III and IV. CFPB did 

not provide written comments. We also received technical comments from 

OCC, the Federal Reserve, and CFPB and incorporated these as 

appropriate. In their comments on this report, the Federal Reserve agreed 

with our recommendations and OCC did not explicitly agree or disagree. 

However, OCC and the Federal Reserve identified actions they will take 

or consider in relation to the recommendations.

For the two recommendations on assessing servicer implementation of 

foreclosure prevention principles, OCC stated that it included this 

requirement in its examination plans. OCC added that foreclosure 

prevention principles will be used as considerations when assessing the 

Recommendations for 

Executive Action

Agency Comments 

and Our Evaluation
 

Page 68 GAO-14-376 Foreclosure Review

effectiveness of servicer actions. We continue to believe that identifying 

specific procedures for testing and evaluating servicers’ application of the 

foreclosure prevention principles to their mortgage servicing practices will 

help regulators determine how effectively servicers’ policies and 

procedures are protecting borrowers and providing meaningful relief. The 

Federal Reserve noted that examination teams plan to use testing during 

their servicer assessments. The Federal Reserve plans to conduct the 

assessments in 2014, as we noted in the report.

For the recommendation on improving the transparency of the consent 

order processes, OCC stated that it will consider including additional 

detail about the categorization of borrowers in its public reports. The 

Federal Reserve said it will consider the recommendation as it finalizes 

reporting and other communication strategies. Both regulators also noted 

that they had made information about the foreclosure review and 

amended consent order processes available on their public websites. As 

we discussed in our report, regulators have taken steps to communicate 

information about the status of activities and results of the amended 

consent orders, and communicating information on the processes for 

determining borrowers’ cash payment amounts provides an additional 

opportunity for regulators to realize their goal of increasing public 

confidence in these processes.

We are sending copies of this report to interested congressional 

committees, the Board of Governors of the Federal Reserve System, the 

Consumer Financial Protection Bureau, and the Office of the Comptroller 

of the Currency. In addition, the report is available at no charge on the 

GAO website at http://www.gao.gov. 

If you or your staff have any questions about this report, please contact 

me at (202) 512-8678 or evansl@gao.gov. Contact points for our Offices 

of Congressional Relations and Public Affairs may be found on the last 

page of this report. Key contributors to this report are listed in appendix V.

Lawrance L. Evans, Jr.

Director, Financial Markets and Community Investment
Appendix I: Objectives, Scope, and 

Methodology

Page 69 GAO-14-376 Foreclosure Review

The objectives of this report were to assess: (1) the factors regulators 

considered in negotiating servicers’ cash payment obligations under the 

amended consent orders and the extent to which regulators achieved 

their stated goals for the cash payments; (2) the objectives of the 

foreclosure prevention actions in the amended consent orders and how 

well regulators designed and oversaw the actions to achieve those 

objectives; (3) the extent to which regulators are sharing information from 

the file review and amended consent order processes; and (4) the extent 

to which regulators have promoted transparency of the amended consent 

orders and remaining review. The scope of our work covered the 16 

servicers that were issued consent orders in 2011 and 2012 requiring 

they conduct file reviews.

To address the factors the Office of the Comptroller of the Currency 

(OCC) and the Board of Governors of the Federal Reserve System 

(Federal Reserve) considered in negotiating servicers’ cash payment 

obligations, we interviewed regulatory staff about the factors they 

considered and analyses they conducted to inform the negotiations. We 

also asked staff about the extent to which the factors and analyses 

differed from typical enforcement action negotiations. We reviewed the 

analyses regulators’ used to inform the negotiations and other 

documentation on the decision to replace the foreclosure review with a 

cash payment agreement, such as OCC’s decision memorandum. We 

also reviewed data consultants provided to regulators on incurred and 

remaining costs, progress of reviews, and findings of error. In addition, we 

conducted a sensitivity analysis to test the impact of changes to major 

assumptions and a reasonableness review of the final negotiated cash 

payment amount. According to Office of Management and Budget 

guidance, a sensitivity analysis examines the effects of changing 

assumptions and ground rules on estimates.1 Further, our Cost 

Estimating and Assessment Guide states that a sensitivity analysis 

provides a range of results that span a best and worst case spread and 

also helps identify factors that could cause an estimate to vary.2

 

1

Office of Management and Budget, Circular No. A-94, Guidelines and Discount Rates for 

Benefit-Cost Analysis of Federal Programs, October 29, 1992. 

To 

conduct our sensitivity analysis, we followed three key steps outlined in 

our Guide: (1) identify the key drivers and assumptions to test, (2) 

2

See GAO, GAO Cost Estimating and Assessment Guide: Best Practices for Developing 

and Managing Capital Program Costs, GAO-09-3SP (Washington, D.C.: Mar. 2, 2009). 

Appendix I: Objectives, Scope, and 

Methodology
Appendix I: Objectives, Scope, and 

Methodology

Page 70 GAO-14-376 Foreclosure Review

estimate the high and low uncertainty ranges for significant input 

variables, and (3) conduct this assessment independently for each input 

variable. We identified and tested major assumptions related to projected 

costs, error rates, and borrower categorizations. We also used the results 

of our analysis to test the reasonableness of the final negotiated cash 

payment amount. Our Cost Estimating and Assessment Guide describes 

a reasonableness review as a process to independently test whether 

estimates are reasonable with regard to the validity of major assumptions.

• Projected costs. To test assumptions related to the projected 

remaining costs to complete the reviews as reported by consultants, 

we calculated monthly costs for each consultant using consultants’ 

cost reports that were available from September 2012 through 

December 2012.3 We then selected the shortest, median, and longest 

projected additional months of review across servicers to calculate the 

projected costs under these scenarios (see table 4). We compared 

our calculated costs in these scenarios to regulators’ cost analyses 

and the final negotiated cash payment amount.

 

3

Servicers began reporting cost data in late August 2012. As such, we used cost 

estimates beginning in September 2012. Cost reports for September 2012 through 

December 2012 were not available for all servicers. As such, we used all available reports 

in that range. For 10 servicers, data were available for 2 months, for 2 servicers data 

were available for 3 months, and for 2 servicers data were available for 4 months. Where 

data were available, we calculated average monthly costs. Where data were not available 

to calculate an average, we calculated the actual monthly cost for 1 month.
Appendix I: Objectives, Scope, and 

Methodology

Page 71 GAO-14-376 Foreclosure Review

Table 4: Analysis of Projected Costs

Cost scenarios

Projected file review 

completion costs (dollars in 

billions)

Total calculated payment including 

$859 million in remediation 

reserves (dollars in billions)

Cost for an additional 4 months of review (shortest projected 

time among servicers) $0.8 $1.6

Cost for an additional 9 months of review (median projected 

time among servicers) 1.7 2.6

Regulators’ estimate of remaining costs based on reports 

from consultants 2.0 2.9 

Costs for an additional 13 months of review (longest projected 

time among servicers) 2.5 3.3

Final cash payment negotiated between regulators and 

servicers 3.9 

Cost for an additional 24 months of review 4.6 5.4

Source: GAO analysis and review of OCC and Federal Reserve data from consultants.

• Error rate. To test assumptions related to the error rate, we reviewed 

error rates in status reports consultants provided to regulators for the 

13 servicers that agreed to the payment agreement in the January 

2013. The amended consent orders implementing the payment 

agreement required the consultants of the participating servicers to 

submit data on the progress of the file reviews as of December 31, 

2012. We used these data, which the consultants submitted to 

regulators in the months following the payment agreement, to select 

the lowest, median, aggregate, and highest error rates reported by 

consultants and calculated the potential remediation payments under 

these scenarios (see table 5). We compared our calculated 

remediation payments under these scenarios to the payment 

calculated in regulators’ analyses and the final negotiated cash 

payment amount.
Appendix I: Objectives, Scope, and 

Methodology

Page 72 GAO-14-376 Foreclosure Review

Table 5: Analysis of Payments at Various Financial Harm Error Rates

Error rate scenarios

Financial harm 

error rate

Calculated payment 

(dollars in billions)

Percent difference between 

regulators’ estimated payment at 

6.5 percent rate

Lowest individual servicer preliminary error 

rate reported 0.6% $0.3 -71.0%

Median individual servicer preliminary error 

rate reported 4.8 1.0 -20.4

Aggregate financial harm error rate reported 

for all servicers, December 2012 (used in 

OCC’s analysis) 6.5 1.2 0.0

Highest individual servicer preliminary error 

rate 23.9 3.7 209.3

Final cash payment negotiated between 

regulators and servicers 3.9 

Source: GAO analysis and review of OCC and Federal Reserve data from consultants.

• Borrower categorization. To test assumptions related to the 

categorization of borrowers across the payment categories used in 

OCC’s error rate analysis, we analyzed borrower distributions for the 

other five servicers involved in the initial amended consent order 

negotiations. We used categorizations servicers provided to the 

regulators during the negotiation process in December 2012. We then 

calculated the potential remediation, using the 6.5 percent financial 

harm error rate used in regulators’ analysis, under each scenario (see 

table 6). We compared our calculated remediation payments under 

these scenarios to the payment calculated in regulators’ analyses and 

the final negotiated cash payment amount. 

Table 6: Analysis of Potential Remediation Using Initial Six Servicers’ Distribution 

of Borrowers

Servicer

Calculated payment 

(dollars in billions)

Final cash payment negotiated between 

regulators and servicers $3.9 

A 1.208 

B (used in regulators’ analysis) 1.195 

C 1.03 

D 0.910 

E 0.829 

F 0.640 

Source: GAO analysis of OCC and Federal Reserve data from servicers.
Appendix I: Objectives, Scope, and 

Methodology

Page 73 GAO-14-376 Foreclosure Review

We verified the accuracy of regulators’ analyses by performing some logic 

tests and recreating the tables and formulas they used for their 

calculations. To assess the reliability of data on the status and preliminary 

financial harm error rates we used in our analyses, we collected 

information from exam team staff for all servicers that participated in the 

amended consent order payment agreement. Because exam team staff 

were responsible for the day-to-day oversight of consultants’ work, we 

collected information on the steps they took to determine whether the 

data were reasonably complete and accurate for the intended purposes.

All exam team staff stated they conducted data reliability activities such 

as observing data entry procedures and controls, participating in or 

observing training for the systems used to generate status reports, 

conducting logic tests, or reviewing status reports. Exam team staff did 

not note any limitations related to the results of the final reviews 

completed by consultants as of December 2012 that would affect our use 

of these data. As such, we determined the data to be sufficiently reliable 

for the purposes of this report.

We were unable to assess the reliability of data on consultants’ incurred 

costs or servicers’ initial borrower categorization results used in our 

analyses. Because most consultants had terminated their work on the 

foreclosure review during our data collection, we had limited access to the 

underlying cost data reported by consultants to regulators, and regulatory 

staff told us they did not assess these data. In addition, the initial 

borrower categorizations performed by servicers during negotiations 

represented preliminary results that were intended to provide regulators 

with information about how the cash payment amount might be 

distributed. These data were described as preliminary by servicers, and 

neither servicers nor regulatory staff validated the accuracy of the 

information used during negotiations.4

 

4

Although the preliminary information used during negotiations was not validated, 

examination teams validated servicers’ final categorization results that were used to make 

payments to borrowers.

Given that limited information was 

available from the sources and users of these data, we were not able to 

assess their reliability. As such, we determined that the data related to 

consultants’ costs and servicers’ initial borrow categorizations are of 

undetermined reliability. However, because our use of these data is 

consistent with regulators’ intended use to inform negotiations we 

determined that the risk of using data of undetermined reliability was low, 
Appendix I: Objectives, Scope, and 

Methodology

Page 74 GAO-14-376 Foreclosure Review

and we concluded that the data were appropriate for our purposes in this 

report.

To determine the stated goals for the cash payments and assess the 

extent to which regulators took steps to ensure servicers achieved them, 

we reviewed the amended consent orders, OCC’s and the Federal 

Reserve’s decision memorandums, and statements made by regulators

about the amended consent orders, including press releases and 

speeches or testimony. We then assessed achievement of these goals 

using data we collected and analyzed and information from interviews we 

conducted with regulators. Specifically, we reviewed regulators’ 

instructions to servicers and examination teams for the categorization 

process and subsequent oversight activities and interviewed OCC 

headquarters and Federal Reserve Board staff about implementation of 

these activities and their oversight actions. In addition, we analyzed 

regulators’ reports on the results of the servicers’ categorization process, 

in particular information on the number of borrowers placed into each 

category by servicer and any subsequent changes to categorization 

results. We also reviewed examination teams’ conclusion memorandums 

describing their oversight activities to verify and validate servicers’ cash 

payment categorization activities, and 10 of the 11 examination teams we 

interviewed or received written responses from provided information 

about their specific approach. We also interviewed three consultants 

responsible for categorizing borrowers into some categories—for 

example, borrowers eligible for protections under the Servicemembers 

Civil Relief Act (SCRA), Pub. L. No. 108-189, 117 Stat. 2835 (2003) 

(codified at 50 U.S.C. app. §§ 501-597b)—about their methodology and 

regulators’ oversight, and of the eight servicers we interviewed seven 

provided information about their process to categorize borrowers for cash 

payments and regulators’ role in this process. To identify the examination 

teams and servicers to interview, we selected examination teams and 

servicers that were overseen by each regulator and also considered a 

range of sizes of eligible populations for the file reviews, including some 

of the largest servicers. To identify the consultants to interview, we 

considered those consultants that supplemented information gathered 

from consultants in prior work on the file review process.5

 

5

See GAO, Foreclosure Review: Opportunities Exist to Further Enhance Borrower 

Outreach Efforts,

Finally, we 

GAO-12-776 (Washington, D.C.: June 29, 2012) and Foreclosure 

Review: Lessons Learned Could Enhance Continuing Reviews and Activities Under 

Amended Consent Orders, GAO-13-277 (Washington, D.C.: Mar. 26, 2013).
Appendix I: Objectives, Scope, and 

Methodology

Page 75 GAO-14-376 Foreclosure Review

assessed the reliability of these data by reviewing related documentation 

and interviewing payment administrator officials knowledgeable about the 

data. We determined that these data were sufficiently reliable for the 

purposes of this report.

To assess the objectives for the foreclosure prevention actions and how 

well regulators designed the actions to realize those objectives, we 

reviewed the amended consent orders to understand the parameters and 

requirements for foreclosure prevention actions, reviewed regulators’ 

decision memorandums, and reviewed regulators’ statements about the 

foreclosure prevention actions in press releases and speeches or 

testimony. We also interviewed regulators about their intentions for the 

actions and the analysis they conducted to support the negotiations of the 

design and amounts. We compared this process with regulators’ typical 

processes for issuance of enforcement actions, as described in their 

supervisory manuals and in interviews with regulators’ staff. We also 

interviewed three experts familiar with negotiations and the design of 

settlements, including staff from the National Mortgage Settlement, to 

understand elements typically considered in the design of settlements. 

We selected these experts based on their familiarity with similar mortgage 

servicing settlements or their recognized expertise in the field of 

settlements involving potential financial harm or where cash payments 

were to be made to victims. In addition, we interviewed staff from one 

regulatory agency, the Bureau of Consumer Financial Protection 

(commonly known as the Consumer Financial Protection Bureau, or 

CFPB), about their policies and procedures for negotiating enforcement 

actions, in particular related to mortgage servicing. Finally, we reviewed 

two settlements that included foreclosure prevention components—the 

National Mortgage Settlement and the separate California Agreement in 

the National Mortgage Settlement—to help identify various factors to 

consider in the design of foreclosure prevention actions in enforcement 

orders or settlements.

Further, to address how regulators oversaw achievement of the 

objectives of the foreclosure prevention component in the amended 

consent orders, we considered both regulators’ activities to oversee 

servicers’ financial obligations and actions to oversee the foreclosure 

prevention principles in the amended consent orders. To facilitate this 

process, we reviewed regulators’ instructions to servicers for reporting on 

their foreclosure prevention obligations and servicers’ reporting 

submissions for May, July, September, and December 2013. We also 

reviewed OCC’s and the Federal Reserve’s instructions to its examination 

teams for oversight of the foreclosure prevention principles. To further 
Appendix I: Objectives, Scope, and 

Methodology

Page 76 GAO-14-376 Foreclosure Review

understand regulators’ oversight of the financial obligations and 

foreclosure prevention principles, we interviewed OCC and Federal 

Reserve staff, including headquarters and Federal Reserve Board staff 

and staff from 10 of the 11 examination teams we interviewed—

representing both OCC and the Federal Reserve and a mix of larger and 

smaller servicers (determined by the number of eligible borrowers from 

the foreclosure review)—about their oversight activities. We compared 

these instructions and their implementation with the supervisory 

expectations in regulators’ supervisory manuals, the supervisory 

instructions for the other articles of the original consent orders, and 

federal internal control standards.6 To supplement our understanding of 

the foreclosure prevention reporting and oversight activities, we 

interviewed representatives from six of the eight mortgage servicers we 

spoke with (representing servicers overseen by both OCC and the 

Federal Reserve of various sizes based on the size of the eligible 

population from the foreclosure review) about their activities to comply 

with the foreclosure prevention requirement and regulators’ oversight 

activities. We also interviewed staff from the National Mortgage 

Settlement, which requires five mortgage services to provide foreclosure 

prevention actions, to understand their experience and approach.7

To assess the extent to which regulators are leveraging and sharing 

information from the file review process, we analyzed consultants’ 

preliminary findings from the file review process, in particular information 

they reported to regulators in exit surveys and during exit interviews with 

regulators. We also reviewed OCC’s examination teams’ conclusion 

memorandums from their oversight of the file review process. We 

compared these with publicly available information on regulators’ findings 

 

6

See OCC, Bank Supervision Process: Comptroller’s Handbook (Washington, D.C.: May 

2013) and Policies and Procedures Manual: Bank Supervision Operations, Enforcement 

Action Policy (Washington, D.C.: July 2001). In addition, the Board of Governors of the 

Federal Reserve System, Division of Banking Supervision and Regulation: Bank Holding 

Company Supervision Manual (Washington, D.C.: July 2013) and Division of Consumer 

and Community Affairs: Consumer Compliance Handbook (Washington, D.C.) accessed 

February 2014. See also GAO, Standards for Internal Control in the Federal Government, 

GAO/AIMD-00-21.3.1 (Washington, D.C.: Nov. 1999).

7

United States v. Bank of America Corp., No. 1:12-CV-00361 (D.D.C. Apr. 4, 2012). The 

Departments of Justice, Treasury, and Housing and Urban Development, along with 49 

state Attorneys General, reached a settlement with the country’s five largest mortgage 

servicers to provide approximately $25 billion in relief to distressed borrowers; the 

servicers also agreed to implement a set of mortgage servicing standards.
Appendix I: Objectives, Scope, and 

Methodology

Page 77 GAO-14-376 Foreclosure Review

from the 2010 coordinated file review conducted by OCC, the Federal 

Reserve, the Federal Deposit Insurance Corporation, and the Office of 

Thrift Supervision to identify the extent to which the findings were similar.8

We also interviewed staff from OCC headquarters and Federal Reserve 

Board and 10 of the 11 examination teams, and representatives from 8 

mortgage servicers about what they learned about mortgage servicing 

from the preliminary file reviews and cash payment categorization 

processes and changes in mortgage servicing practices since the 2009 

and 2010 period covered by the file review process.9 In addition, we 

asked regulator staff, including the examination teams, about steps they 

had taken or were planning to take to share this information among 

examination teams or with other regulators, such as CFPB, or to use this 

information for future oversight. We also interviewed CFPB staff about 

information they had requested or received about the preliminary file 

review results. We compared regulators’ plans to share and leverage 

information with federal internal control standards for recording and 

communicating information to help management and others conduct their 

responsibilities.10

To assess regulators’ efforts to promote transparency of the amended 

consent orders and remaining review, we reviewed press releases and 

documents from regulators related to the amended consent orders and 

the remaining review. In particular, we reviewed what documents were 

available about the amended consent orders and the remaining review on 

the regulators’ websites, such as frequently asked questions, webinars, 

press releases, and status updates related to check issuance, and 

analyzed the content of these materials. We also reviewed the payment 

administrator’s telephone instructions to respond to questions about the 

 

8

The Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203, 

§§ 311-313, 124 Stat. 1376, 1520-1523 (2010), eliminated the Office of Thrift Supervision 

and transferred its regulatory responsibilities to OCC, the Federal Deposit Insurance 

Corporation, and the Federal Reserve. The transfer of these powers was completed on 

July 21, 2011, and the Office of Thrift Supervision was officially dissolved 90 days later 

(Oct. 19, 2011).

9

As we noted earlier, we identified examination teams and servicer representatives to 

interview so as to have a mix of OCC and Federal Reserve examination teams and 

servicers overseen by the two regulators. We also considered the relative size of the 

servicers, based on the size of the eligible population for the foreclosure review, so as to 

have larger- and smaller-sized servicers. 

10See GAO/AIMD-00-21.3.1. 
Appendix I: Objectives, Scope, and 

Methodology

Page 78 GAO-14-376 Foreclosure Review

amended consent order process. In addition, we reviewed examples of 

the postcards and letters sent to borrowers to communicate about the 

amended consent order payments and to provide cash payments. We 

also interviewed regulator staff about the steps they took to promote 

transparency and their plans for future reporting. We compared this 

documentation to federal internal control standards on communications 

and our work on organizational transformation to identify any similarities 

or differences.11 Further, we considered our prior recommendation about 

lessons learned about transparency of the foreclosure review for the 

amended consent order process.12

We conducted this performance audit from May 2013 through April 2014 

in accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives.

Finally, we also conducted interviews 

with representatives of consumer groups.

 

11See GAO, Major Management Challenges and Program Risks: Department of 

Homeland Security, GAO-03-102 (Washington, D.C.: Jan. 2003) and Results-Oriented 

Cultures: Implementation Steps to Assist Mergers and Organizational Transformations, 

GAO-03-669 (Washington, D.C.: July 2, 2003). Part of the methodology to develop these 

reports included convening a forum of public and private-sector leaders to discuss useful 

practices from major private and public-sector organizational mergers, acquisitions, and 

transformations that federal agencies could learn from when making changes, such as 

those in response to governance challenges. The participants of the forum identified key 

practices and lessons learned regarding mergers and transformations. We considered this 

example relevant to the foreclosure review because of the significant nature of the change 

from the foreclosure review to the activities under the amended consent orders for 

distributing direct payments and other assistance. In addition, see GAO/AIMD-00-21.3.1. 

12See GAO-13-277. 
Appendix II: Office of the Comptroller of the 

Currency (OCC) and the Board of Governors of 

the Federal Reserve System (Federal Reserve) 

Actions in Response to GAO’s 

Recommendations on the Independent 

Foreclosure Review

Page 79 GAO-14-376 Foreclosure Review

We have issued two prior reports on the foreclosure review process. In 

our first report on the outreach component of the foreclosure review, we 

found that the Comptroller of the Currency (OCC) and the Board of 

Governors of the Federal Reserve System (Federal Reserve) and 

servicers had gradually improved the communication materials for 

borrowers, but that regulators could make further enhancements to the 

outreach efforts.1 In our second report, we identified lessons learned from 

the file review process that could be used to enhance the activities under 

the amended consent orders and the continuing reviews.2 Below we list 

the recommendations made in each report and the actions taken by 

regulators in response.

 

1

See GAO, Foreclosure Review: Opportunities Exist to Further Enhance Borrower 

Outreach Efforts, GAO-12-776 (Washington, D.C.: June 29, 2012).

2

See GAO, Foreclosure Review: Lessons Learned Could Enhance Continuing Reviews 

and Activities Under the Amended Consent Orders, GAO-13-277 (Washington, D.C.: Mar. 

26, 2013). In April 2013, we used our March 2013 report as the basis for testimony before 

the Senate Subcommittee on Housing Transportation, and Community Development, 

Committee on Banking, Housing, and Urban Affairs. See GAO, Foreclosure Review: 

Lessons Learned Could Enhance Continuing Reviews and Activities Under the Amended 

Consent Orders, GAO-13-550T (Washington, D.C.: Apr. 17, 2013).

Appendix II: Office of the Comptroller of the Currency (OCC) and the Board of Governors of 

the Federal Reserve System (Federal Reserve) 

Actions in Response to GAO’s Recommendations 

on the Independent Foreclosure Review
Appendix II: Office of the Comptroller of the 

Currency (OCC) and the Board of Governors of 

the Federal Reserve System (Federal Reserve) 

Actions in Response to GAO’s 

Recommendations on the Independent 

Foreclosure Review

Page 80 GAO-14-376 Foreclosure Review

Table 7: OCC and Federal Reserve Actions in Response to GAO’s Recommendations on the Independent Foreclosure Review

Foreclosure Review: Lessons Learned Could Enhance Continuing Reviews and Activities under Amended Consent Orders: 

GAO-13-277, March 26, 2013 

Recommendation Actions taken Status 

For servicers not subject to the amended 

consent orders, as appropriate, improve 

oversight of sampling methodologies and 

mechanisms to centrally monitor 

consistency, such as assessment of the 

implications of inconsistencies on 

remediation results for borrowers in the 

remaining foreclosure reviews.

Between January and August 2013, the Office of the Comptroller of 

the Currency (OCC) continued oversight of the sampling activities 

of the two servicers that continued file review activities and took 

steps to monitor consistency of the results. According to OCC, both 

consultants used sampling methodologies that were more robust 

than the one required by regulators and the initial sampling results 

provided sufficient information for consultants to propose additional 

reviews. To facilitate central monitoring of the consistency of the file 

review processes and results, the two remaining reviews were 

partially overseen by the same exam team. This team had specific 

responsibility for considering the consistency of file review results 

and processes and would conduct additional reviews where they 

found differences that might lead to inconsistent results. As a result 

of these steps, OCC validated the initial file review results for both 

servicers and approved one consultant using the results to conduct 

additional file reviews. For the other servicer, the results of the file 

reviews were used as the basis to amend the consent order and 

provide cash payments to all borrowers. In contrast to OCC, all of 

the servicers overseen by the Board of Governors of the Federal 

Reserve System (Federal Reserve) signed amended consent 

orders ending the file review process and instituting a process to 

provide cash payments to all borrowers. 

OCC: ClosedImplemented 

Federal Reserve: 

Closed-Not 

Implemented

Identify and apply lessons from the 

foreclosure review process, such as 

enhancing planning and monitoring 

activities to achieve goals, as regulators 

develop and implement the activities under 

the amended consent orders. 

According to OCC and Federal Reserve staff, they considered 

lessons learned from the file review process in both their planning 

and oversight of the amended consent order activities. For 

example, for the cash payment categorization process they issued 

up-front guidance to servicers and examination teams to facilitate 

consistent categorization and oversight of the process. In addition, 

regulators took steps to prepare for the distribution of checks to 

borrowers, including establishing performance measures and 

holding regular phone meetings to facilitate monitoring of check 

issuance activities. With regard to the foreclosure prevention 

component, regulators consulted with consumer groups to help 

identify the types of information to collect on servicers’ activities, 

issued a reporting template for servicers to record information on 

the loans they were submitting for crediting, and are hiring a thirdparty to review the crediting process. 

ClosedImplemented
Appendix II: Office of the Comptroller of the 

Currency (OCC) and the Board of Governors of 

the Federal Reserve System (Federal Reserve) 

Actions in Response to GAO’s 

Recommendations on the Independent 

Foreclosure Review

Page 81 GAO-14-376 Foreclosure Review

Develop and implement a communication 

strategy to regularly inform borrowers and 

the public about the processes, status, and 

results of the activities under the amended 

consent orders and continuing foreclosure 

reviews. 

Since the announcement of the amended consent orders and our 

March 2013 report, regulators have taken steps to keep borrowers 

and the general public informed about the status of activities under 

the amended consent orders and continuing foreclosure reviews. 

For example, regulators directed that the payment administrator for 

14 of the 15 servicers subject to amended consent orders send 

postcards to approximately 4.4 million borrowers informing them 

that they would receive a cash payment from their servicer, and 

regulators regularly updated their websites with information on the 

number and amount of cash payment checks cashed under the 

amended consent orders. Regulators also directed the 

administrator to send communications to borrowers subject to the 

continuing file review to inform them that their reviews were 

ongoing. Regulators plan to issue publicly final reports on the direct 

payment process and foreclosure prevention actions as well as 

information from the reviews that were terminated and the results of 

the review that continued, but they have not yet determined the 

content and timing of these reports. However, regulators’ actions to 

date have included limited information on processes. For example, 

regulators did not release publicly information on the criteria for 

borrower placement in each category, such as the specific loan and 

borrower characteristics associated with each category.

Open 

Foreclosure Review: Opportunities Exist to Further Enhance Borrower Outreach Efforts: GAO-12-776, June 29, 2012 

Enhance the readability of the request-forreview form on the independent 

foreclosure review website so that it is 

more understandable for borrowers, such 

as by including a plain language guide to 

the questions. 

In July 2012 a request-for-review help-sheet was added to the 

independent foreclosure review website that provides additional tips 

in plain language, explanation of key terms, and additional 

instructions to help borrowers fill out the request-for-review form.

ClosedImplemented 

Require that servicers include a range of 

potential remediation amounts or 

categories in communication material and 

other outreach, such as direct mailings to 

borrowers, public service announcements, 

the independent foreclosure review 

website, regulators’ websites, and officials’ 

testimonies and speeches. 

In June 2012, OCC and the Federal Reserve publicly released a 

framework of remediation amounts and categories. The regulators 

issued a joint press release announcing the release of the 

framework. The framework was posted on the independent 

foreclosure review website and regulators’ websites. In November 

2012, servicers included information on the ranges of potential 

payment amounts or categories in their additional outreach 

materials. This additional information clarified the potential benefit 

to borrowers of submitting a request-for-review. 

ClosedImplemented 
Appendix II: Office of the Comptroller of the 

Currency (OCC) and the Board of Governors of 

the Federal Reserve System (Federal Reserve) 

Actions in Response to GAO’s 

Recommendations on the Independent 

Foreclosure Review

Page 82 GAO-14-376 Foreclosure Review

Require servicers to identify trends in 

borrowers who have and have not 

responded by factors such as Metropolitan 

Statistical Area, zip code, servicer, and 

borrower characteristics and report to the 

regulators on weaknesses found. If 

warranted, regulators should require that 

servicers, in consultation with their thirdparty consultants, conduct more targeted 

outreach to better reach underrepresented 

groups, such as considering more credible 

messengers to reach these groups. If such 

action cannot be taken prior to the 

deadline for requests for review, regulators 

should consider expanding the look-back 

review to better ensure coverage for 

underrepresented groups. 

In summer 2012, OCC and the Federal Reserve advised servicers 

to structure their additional outreach activities so as to target 

communities based on audience characteristics, response data, 

and consumer research. To tailor this outreach, servicers analyzed

data on borrowers who responded to the initial outreach activities 

compared to those who did not and conducted a market analysis to 

identify geographic areas and ethnic groups with the greatest 

opportunity to benefit from increased awareness about the 

opportunity to file a request-for-review. In addition, servicers 

identified effective messengers by using leaders of community 

groups, including faith-based groups and groups that represent 

minorities, to deliver targeted information about the foreclosure 

review process. These additional outreach activities began in 

November 2012.

ClosedImplemented 

Source: GAO analysis of OCC and Federal Reserve information.
Appendix III: Comments from the Office of the 

Comptroller of the Currency

Page 83 GAO-14-376 Foreclosure Review

Appendix III: Comments from the Office of 

the Comptroller of the Currency
Appendix III: Comments from the Office of the 

Comptroller of the Currency

Page 84 GAO-14-376 Foreclosure Review
Appendix IV: Comments from the Board of 

Governors of the Federal Reserve System

Page 85 GAO-14-376 Foreclosure Review

Appendix IV: Comments from the Board of 

Governors of the Federal Reserve System
Appendix IV: Comments from the Board of 

Governors of the Federal Reserve System

Page 86 GAO-14-376 Foreclosure Review
Appendix V: GAO Contact and Staff 

Acknowledgements

Page 87 GAO-14-376 Foreclosure Review

Lawrance L. Evans, Jr. (202) 512-8678 or evansl@gao.gov

In addition to the contact named above, Jill Naamane (Assistant Director), 

Bethany M. Benitez, Maksim Glikman, DuEwa Kamara, John Karikari, 

Charlene J. Lindsay, Patricia MacWilliams, Marc Molino, Jennifer 

Schwartz, Andrew Stavisky, Winnie Tsen, and James Vitarello made key 

contributions to this report.

Appendix V: GAO Contact and Staff 

Acknowledgements

GAO Contact

Staff 

Acknowledgments

(250731)
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